Manufacturing Sector performance in Morocco: What Role Do Exchange Rate Fluctuations Play?

Abstract

This study investigates the dynamic relationship between the real effective exchange rate (REER) and manufacturing value added (MAV) in Morocco, with a particular emphasis on the impact of exchange rate fluctuations on the competitiveness and growth of the manufacturing sector. The objective is to examine how variations in the REER, alongside internal and external economic determinants, influence the evolution of MAV. Additionally, the study explores the interdependencies among these variables to assess the long-term economic sustainability of Morocco’s manufacturing sector. To achieve this, an Autoregressive Distributed Lag (ARDL) model and a Restricted Error Correction Model (RECM) are employed to analyze both short- and long-term relationships between key macroeconomic variables, including REER, Foreign Direct Investment (FDI), interest rates, human capital, and economic openness. The empirical analysis relies on data sourced from reputable institutions such as the World Bank (WDI) and Bank Al-Maghrib (BAM) over the period 1995–2023. The results reveal intricate interactions between the REER and MAV, underscoring the critical role of exchange rate stability in fostering competitiveness and sustainable growth in the manufacturing sector. Based on these findings, the study offers policy recommendations aimed at enhancing economic governance and strengthening the resilience of Morocco’s manufacturing industry.