An empirical analysis of the impacts of real exchange rate on GDP, manufacturing output and services sector in Mauritius

Abstract

Abstract The purpose of this study is to examine the effects of the real exchange rate (RER) movements on gross domestic product, manufacturing and services sectors growth in Mauritius. A Vector Autoregressive approach is used which accounts for both dynamics and endogeneity in the exchange‐growth modeling. In the growth model, real currency depreciation is observed to be contractionary in the short‐run while it is expansionary in the long‐run. Conversely, real home currency depreciation has expansionary effect on manufacturing output growth in the short‐run while it drops manufacturing output in the long‐run. Finally, real domestic currency depreciation has positive long term effect on services sector performance in Mauritius.

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