linkages between exchange rate and economic growth in morocco: an econometric approach using simultaneous equations

Abstract

The purpose of this paper is to examine the effect of exchange rate variations on morrocan economic growth and to determin the indirect channels of this influence. An econometric approche has been used to explore this relationship. Each equation in the system explains one of the selected endogenous variables, namely : GDP per capita growth; imports; exports; domestic investment and FDI. The last four variables represent the potential transmission channels of exchange rate variations on growth. The choice of the explanatory variables is the result of a consistent research and empirical investigation in order to determine the best model for each of the five equations of the system.

The empirical findings using three stage least squares technique reveal that reel effective exchange rate has a significant negative effect on economic growth, provided that the institutional quality variable is introduced in the model. Thus, our results show that imports, exports and FDI are the channels through which exchange rate variations affect growth, where exchange rate appreciation has a negative impact on exports and FDI. Although it has a positive effect on imports. However, we found no evidence of a significant impact of exchange rate variations on domestic investment in Morocco. 

JEL Classification : F31, F43, C3.

Paper type : Empirical research