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Black Market Exchange Rate, Trade Freedom and the Links with Economic Growth: Empirical Evidence from the North African Countries

Journal: North African Review of Economics and Management (Vol.2, No. 1)

Publication Date:

Authors : ; ;

Page : 49-71

Keywords : Black Market Exchange Rate; Trade Freedom; Economic Growth; North African Countries; Panel Data Analysis;

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Abstract

The present paper investigates the impact of black market exchange rate and trade freedom on economic growth in 4 North African countries over the period 1995-2011, through the use of panel data analysis. According to the Hausman test, the fixed effects model is the most suitable one, it reveals that the black market exchange rate exhibits a statistically significant positive impact on economic growth in the North African countries (in other words, higher BEXR index leads to higher growth rates, since a high BEXR score indicates a low black market exchange rate premium), and this is consistent with theory. Likewise, trade freedom displays a highly significant positive influence on economic growth in the four case study countries. To sum up, a low black market premium and high trade freedom serve as promising catalysts for the North African countries' economic growth. Based on these findings, it can be concluded that the North African governments should dedicate massive reforms with clear goals and vigorous commitments to shrink the black market premium. Additionally, the use of economic incentives for converting the track of black market towards the official mainstream is more effective than a bunch of unenforceable laws, and it further reflects the credibility of the government's economic policy. Moreover, Policy-makers in the North African region should design proper policies that aim to reduce incentives to engage in illegal market activities, and even more importantly, they must abandon all restrictive trade practices and liberalize FDI policies; they should also embark on ambitious policies aimed at stabilizing the political situation and consolidating peace.

Last modified: 2017-02-03 20:04:36