CFA membership and the role of relative price stability in investment performance
In the last chapter, we saw that in certain CFA countries investment is affected by the instability of capital goods prices, this instability reflecting the variability of returns to investment. It is not possible to investigate the time-series relationship between investment and variability of returns in all African countries, since in many countries the data is wanting. However, it is possible to study the link between investment and variability using cross-country data, and so to widen the scope of our investigation. The factors that explain differences in rates of investment between countries are not necessarily the same as those that explain differences in one country over time; but we can ask whether the variability of returns is important in both cases. Guillaumont (1988) finds that the unconditional mean of the investment-GDP ratio is higher in the CFA than in other African countries. If we find that variability is lower in the CFA, then we have one explanation for why investment in the CFA is higher.