Competitiveness and the exchange rate regime: Case of the EMCCA zone

Abstract

The object of the present reflection is to determine between the three exchange regimes (the fixed exchange regime, the intermediate exchange regime and the flexible exchange rate regime), the one that allows the significant improvement of the competitiveness of an economy member of a heterogeneous monetary union, in this case the EMCCA zone. To do this, we relied on the model of Aloui and Sassi (2005) which we adapted by introducing the external competitiveness of the member economies. Few studies have shown that competitiveness can be influenced either by the fixed exchange rate regime, or by the intermediate exchange rate regime, or by the flexible exchange rate regime leading to highlight their respective effects in the choice of the best exchange rate regime within a monetary union. The empirical verification was done by applying the dynamic panel to annual data from World Bank statistics covering the period from 1970 to 2019. The exchange rate regime characterizing a discrete variable was definied in the from of codes following the classification of exchange rate regimes by Reinhart and Rogoff (2004) to take account of the estimation logic of an unordered multinomial logit model. Thus, according to the results obtained, it appears that the fixe exchange rate regime is the one that makes it possible to promote such a significant improvement in competitiveness, compared to the two other regimes, even if the choice of a regime is sub-optimal, because of this inability to promote the management of national disparities within the EMCCA zone.

Keywords: competitiveness, fixed exchange rate regime, intermediate exchange rate regime, flexible exchange rate regime, multinomial model, heterogeneous monetary union.

JEL classification : E52, E41

Paper Type : Empirical Research