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Exchange Rate Regime, Real Exchange Rate, Trade Flows and Foreign Direct Investments: The case of Morocco

  • Bouoiyour, Jamal
  • REY, Serge

We study the behavior of the Real Effective Exchange Rate (REER) of the dirham against the European currencies (Europe of the 15), 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 (NATREX model). We show that a rise of the volatility of the dirham reduces the trade flows (exports and imports). The misalignments affect also the trade flows: an overvaluation leads to a reduction in Morocco exports from, to a raise of 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 the direct investments (FDI) in favor of Morocco.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38643.

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Date of creation: 2005
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Publication status: Published in African Review of Development 17.2(2005): pp. 302-334
Handle: RePEc:pra:mprapa:38643
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  1. Khalid Sekkat & Aristomene Varoudakis, 2000. "Exchange rate management and manufactured exports in Sub-Saharan Africa," ULB Institutional Repository 2013/7342, ULB -- Universite Libre de Bruxelles.
  2. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  3. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
  4. Corden, W Max, 1993. "Exchange Rate Policies for Developing Countries," Economic Journal, Royal Economic Society, vol. 103(416), pages 198-207, January.
  5. Peter A. Petri, 1997. "Trade Strategies for the Southern Mediterranean," OECD Development Centre Working Papers 127, OECD Publishing.
  6. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
  7. McKenzie, Michael D. & Brooks, Robert D., 1997. "The impact of exchange rate volatility on German-US trade flows," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(1), pages 73-87, April.
  8. Baum, Christopher F. & Caglayan, Mustafa & Barkoulas, John T., 2001. "Exchange Rate Uncertainty and Firm Profitability," Journal of Macroeconomics, Elsevier, vol. 23(4), pages 565-576, October.
  9. Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
  10. Ofair Razin & Susan M. Collins, 1997. "Real Exchange Rate Misalignments and Growth," NBER Working Papers 6174, National Bureau of Economic Research, Inc.
  11. Kenneth A. Froot & Jeremy C. Stein, 1992. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," NBER Working Papers 2914, National Bureau of Economic Research, Inc.
  12. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
  13. Peter B. Clark, 1973. "Uncertainty, Exchange Risk, And The Level Of International Trade," Economic Inquiry, Western Economic Association International, vol. 11(3), pages 302-313, 09.
  14. Chowdhury, Abdur R, 1993. "Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Models," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 700-706, November.
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