OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Macroeconomic Convergence in Southern Africa

The Rand Zone Experience

In this paper we aim to answer the following two questions: 1) has the Common Monetary Area in Southern Africa (henceforth CMA) ever been an optimal currency area (OCA)? 2) What are the costs and benefits of the CMA for its participating countries? In order to answer these questions, we carry out a two-step econometric exercise based on the theory of generalised purchasing power parity (G-PPP). The econometric evidence shows that the CMA (but also Botswana as a de facto member) form an OCA given the existence of common long-run trends in their bilateral real exchange rates. Second, we also test that in the case of the CMA and Botswana the smoothness of the operation of the common currency area — measured through the degree of relative price correlation — depends on a variety of factors. These factors signal both the advantages and disadvantages of joining a monetary union. On the one hand, the more open and more similarly diversified the economies are, the higher the benefits they ...


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