Exchange Rate Influence on Morocco's Economic Growth: What if institutional quality matters to support this link?

Résumé

Traditionally, the exchange rate has not held a prominent role in the formulation of economic growth theories. However, it gained considerable attention after the collapse of Bretton Woods system, when the exchange rate received significant macroeconomic implications. However, only few studies have attempted to investigate the relationship between the exchange rate and economic growth in Morocco. Therefore, the main aim of this paper is to examine how variations in the real effective exchange rate (REER) impact GDP per capita growth in Morocco from 1988 to 2019.

An exploratory data analysis was conducted. This step involved analyzing simple and partial correlations, using the REER as a control variable, to understand the relationships between the variables. The correlation analysis was complemented by a multivariate analysis, using the principal component analysis method. Following the exploratory data analysis, a multiple regression was estimated using the ordinary least squares method.

The estimation results show that the introduction of the institutional quality variable into the model reveals a negative impact of REER on economic growth in Morocco. This result is consistent with the findings from the correlations and principal component analysis, which indicate a strong link between the exchange rate and institutional quality.