On the long-run determinants of real exchange rates for developing countries : Evidence from Africa, Latin America and Asia

Abstract

The main goal of this paper is to tackle the empirical issues of the real exchange rate litterature by applying recently developed panel cointegration techniques to a structural long-run real exchange rate equation. We consider here a sample of 45 developing countries, divided into three groups according to geographical criteria: Africa, Latin America and Asia. Our investigations confirm that having a reference to assess the degree of distortion of real exchange rate is not as simple as it can be thought with the PPP concept. The real exchange rate is e?ectively at the centre of an economic spiral and its value depends on the economic specificities of each country. In other words, we don’t have a fixed and general norm but, for each economy, the real exchange rate trajectory depends on its development level, on the way economic policy is conducted, and on its position on the international market.