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Exchange Rate Regime, Real Exchange Rate, Trade Flows and Foreign Direct Investments: The Case of Morocco
Author(s) -
Bouoiyour Jamal,
Rey Serge
Publication year - 2005
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/j.1017-6772.2005.00117.x
Subject(s) - economics , effective exchange rate , volatility (finance) , international economics , foreign direct investment , balance of trade , exchange rate , european union , monetary economics , international trade , macroeconomics , econometrics
Abstract: We study the behavior of the Real Effective Exchange Rate (REER) of the dirham against the European currencies (the EU15), over the period 1960–2000 (annual data). We measure the volatility using standard deviation, and the misalignments as the difference between the actual REER and the equilibrium REER (the NATREX model). We show that a rise in the volatility of the dirham reduces the trade flows (exports and imports). The misalignments also affect the trade flows: an overvaluation leads to a reduction in Morocco exports, to an increase in Morocco imports, and globally to a deterioration of the trade balance with the European Union. On the other hand, neither the volatility nor the misalignments have an effect on foreign direct investment in favor of Morocco.