Exchange rate regime, real exchange rate, trade flows and foreign direct investments : the case of Morocco

The authors study the behavior of the Real Effective Exchange Rate (REER) of the dirham against the European currencies (the EU15), over the period 1960-2000 (annual data). They measure the volatility using standard deviation, and the misalignments as the difference between the actual REER and the equilibrium REER (the NATREX model). They show that a rise in the volatility of the dirham reduces the trade flows (exports and imports). The misalignments also effect the trade flows: an overvaluation leads to a reduction in Moroccan exports, to an increase in Moroccan 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 foreign direct investment in favor of Morocco. (InWent/GIGA)