The impact of the real exchange rate on manufacturing exports in Benin

The objective of this study is to assess developments in Benin's external competitiveness and hence its exchange rate policy. It analyses the relationship between the exchange rate regime and the performance of exports in Benin, a member country of the Chartered Financial Analyst (CFA) Franc zone for the 1980-2003 period. The study focuses, in particular, on the impact of the exchange rate policy differential on trade between Benin and Nigeria by incorporating informal trade data. Consequently, four indicators of the real effective exchange rate were designed: on the one hand, an indicator of the internal real exchange rate to measure the evolution of consumer prices with respect to the wholesale price index for the United States; on the other hand, three indicators of the real effective exchange rate were developed: a real effective exchange rate index for exports, a real effective exchange rate index for imports and a real effective exchange rate for trade. These indicators allow us to explore the ways and means of diversifying and making export activities profitable in Benin, given that its export base is relatively poorly diversified, and to raise the question of the future of re-export trade towards Nigeria. This study underscores the difficulty of obtaining a comprehensive and detailed real exchange rate index.