Abstract
This study aims to analyze the relationship between changes in the real effective exchange rate and economic growth in Côte d'Ivoire. The autoregressive distributed lag (ARDL) approach and the Toda-Yamamoto causality test were used. The data cover the period 1980 to 2012. The results conclude the existence of a long-term relationship between economic growth and variation in the real effective exchange rate and the gross fixed capital formation. Furthermore, the results of causality test confirm the existence of bidirectional causality between the long-term misalignment and economic growth in Côte d'Ivoire. Thus, the Ivorian authorities have to observe and follow the evolution of real effective exchange rate by controlling the level and the evolution of the macroeconomic fundamentals of the economy (real GDP, productivity, terms of trade, net external position, etc...) simultaneously and this within a global framework of West Africa of Economic and Monetary Union (WAEMU). Key words: ARDL, causality, growth, real exchange rate
Highlights
The relation between the exchange rate and economic growth is both descriptive and normative (Ito and Krueger, 1999)
The results of causality test confirm the existence of bidirectional causality between the long-term misalignment and economic growth in Côte d'Ivoire
The major objective of this study has been to analyse the relationship between changes in the real effective exchange rate and economic growth in Côte d'Ivoire
Summary
The relation between the exchange rate and economic growth is both descriptive and normative (Ito and Krueger, 1999). Very few studies in the context of approaches to the growth have granted a place for a theoretical formalization of the long term relationship between real exchange rate and growth. The misalignment of the exchange rate, often unfavorable overvalued activities exchangeable, is widely discussed in economic performance studies and is considered harmful (Vieira and MacDonald, 2010). This is why the exchange rate and its possible mismatch received special attention as a major source of macroeconomic imbalances whose correction is one of the crucial conditions to improve economic performance and macroeconomic stability (Domac and Shabsigh, 1999). Concerning West Africa, few studies have analyzed the relationship between
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