The Economic Cost of Foreign Exchange and Shadow Price of Non – Tradable Outlays for West African Economic & Monetary Union

ABSTRACT: The prior objective of this thesis is to develop a general expression for the estimations of economic opportunity cost of foreign exchange for tradable goods and services and the shadow price of non-tradable outlays for the non-tradables for any economy. Methodologically, a three sector general equilibrium framework is used where the impacts of both financing (in relation to domestic and foreign capital market actions) and purchase along with any subsequent changes in the equilibrium quantities of goods and services due to any change in the relative prices of goods are taken into account. As the sectors of the economy involve various sets of market distortions such as tariffs, taxes, subsidies and other kinds of indirect taxes, market values diverge from their real economic worth. Therefore, while estimating the numeraire of the economic opportunity cost of foreign exchange and the shadow price of non-tradable outlays, any changes in economic welfare due to the shifts in demand and supply between the tradables and non-tradables together with these set of distortions are measured in a consistent manner. Using the three sector general equilibrium model, the research concludes that the additional cost of the use of foreign exchange within the West African Economic and Monetary Union is about 7.3 per cent of the market value of tradable goods and there will be approximately a 2.4 per cent premium on the expenditures or receipts of nontradable goods within the region. Keywords: Three Sector General Equilibrium Model, Economic Cost of Foreign Exchange, Shadow Price of Non – Tradable Outlays, West African Economic and Monetary Union ……………………………………………………………………………………………………………………………………………………………………………………………………………………