The Impact of Exchange Rate Regimes on Economic Growth

Abstract

The subject of this paper is articulate about the impact of exchange rate regimes on economic growth, through the identification of the various theoretical and empirical literature on exchange rate regimes and their performance in macro economy generally and economic growth particularly. In order to achieve this purpose, we used an econometrics’ study to express the quantitative approach using time-series data (panel data), a sample consisting of about 25 countries during the period from 1980 to 2015, divided into three groups according to the classification of common realistic Reinhart and Rogoff et al. (2004) and Levy-Yeyati and Sturzenegger (European Economic Review, 49(6): 1603–1635, 2005). In order to know what kind of regimes, fixed or flexible or intermediate accompanied with higher economic growth. The economic results obtained indicate the existence of a positive relationship between exchange rate regimes and economic growth and give support to the hypothesis that if the developing countries adopt a fixed exchange rate regime, they will attain a higher growth rate than if they adopt a flexible or an intermediate regime, so the best economic growth rate has been linked to fixed exchange rate regime, followed by flexible regime and the intermediate regime ranked in the third position, and this supports the views of supporters of the “Bipolar View Theory” or “Corner Solution” in the selection of appropriate exchange rate regimes.