Capital account liberalization and Moroccan macroeconomic performances

Moroccan economic policy was oriented since mid-1980s to open and liberalize the economy. The openness policy was reinforced with trade flows liberalization in 1993 with accession to article VIII of IMF status. In a new step, the opening of the economy is reached after accession to the GATT and WTO and the conclusion of many bilateral free trade agreements in the end of 1990s and the beginning of the new millennium. Recently, the openness is accelerated in the area of capital flows liberalization with the objective to eliminate the restrictions on capital inflows and then on capital outflows. Thus, the recent capital account dynamics lead us to attempt to evaluate their effects on main macroeconomic variables. For this, we start the discussion by recalling the theoretical debate around external financial liberalization and lessons obtained from the recent experience. After this, we discuss the opportunity for Morocco, as small and open economy, to integrate international financial markets. Methodologically, we use a Structural Vector Auto-Regressive (SVAR) model to explore the interaction between capital flows and macroeconomic variables. The period of study is from 1980 to 2012. The results allow us to conclude that capital account liberalization has a major effect on real effective exchange rate. Capital inflows lead to a temporary depreciation of the real effective exchange rate during the first year and, then, to an appreciation starting from the second year. Precisely, the results confirmed that the conduct of capital account liberalization policy under a fixed exchange rate regime is conducive to the risk of real appreciation.