Real Exchange Rate Misalignment and Economic Growth: An Empirical Study for the Maghreb Countries

Zouheir Abida
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Zouheir Abida: Department of Economics, University of Sfax, Faculty of Economics and Management of Sfax, Sfax, Tunisia

Zagreb International Review of Economics and Business, 2011, vol. 14, issue 2, 87-105

Abstract: It has long been recognized in academic and policy debates that domestic policies play an important role in explaining economic growth. The paper investigates the role of real exchange rate (RER) misalignment on long-run growth in three countries of the Maghreb countries (Tunisia, Algeria and Morocco) over the period 1980-2008. We first estimate equilibrium RER relying on the Fundamental Equilibrium Exchange Rate (FEER) approach, from which misalignment is derived. Second, we estimate a dynamic panel growth model in which among the traditional determinants of growth, our measure of misalignment is included. The results indicate that the coefficient for RER misalignment is negative, which means that a more depreciated (appreciated) RER helps (harms) long-run growth. As a consequence, an appropriate exchange rate policy would close the gap between RER and its equilibrium level.

Date: 2011
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