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What are the Long-Run Determinants of the Real Exchange Rate in Mena Countries? An Empirical Investigation

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  • I Drine
  • C Rault

Abstract

This paper investigates the main determinants of the real exchange rate in the Meadle East and North African (MENA) countries. We carry out recent panel data unit-root tests proposed by Im, Pesaran and Shin (1997, 2003) and panel data cointegration techniques developed by Pedroni (1999, 2004) to estimate the long-run determinants of the real exchange rate and we compare the results with those obtained with conventional time series unit-roots and cointegration tests. Our main finding is that whereas standard time series approach rejects the Balassa-Samuelson hypothesis for 12 countries out of 16, recent panel cointegration techniques permit to rescue this hypothesis for MENA countries. Moreover, further investigations show that government consumption, real interest rate differentials and the openness degree of the economy also influence real exchange rate in the long-run.

Suggested Citation

  • I Drine & C Rault, 2006. "What are the Long-Run Determinants of the Real Exchange Rate in Mena Countries? An Empirical Investigation," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 30(1), pages 83-100, April.
    • Handle: RePEc:taf:rseexx:v:30:y:2006:i:1:p:83-100
    DOI: 10.1080/10800379.2006.12106401
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