ECONOMIC GROWTH AND EXCHANGE RATE REGIME: PANEL DATA ANALYSIS

Abstract

The main goal of this work is to investigate the relevance of exchange rate
regimes for long-run economic growth using a sample of 82 countries for the period of
1970 to 2009 and also the role of different types of financial crises. The results of System-
GMM estimation indicate that countries with flexible and intermediate exchange
rate regimes have higher growth rates when compared to those with peg / fixed exchange
rate regimes for the entire period (1970 a 2009) but these results are not robust
for the 1990 to 2009 period. This result seems to be associated to the argument that flexible and intermediate exchange rate regimes are less likely to be associated to exchange rate appreciation which has a negative impact on the export sector. For the post 1970 period, economic growth performance relies also on the behavior of inflation, years of education (proxy for human capital), terms of trade and the investment rate. For the post 1990 period the variable government expenditure as percentage of GDP (proxy for fiscal discipline) is statistically significant with a negative estimated coefficient indicating that higher (lower) fiscal discipline is associated to higher (lower) growth rates. Regarding the different types of crises, they have not revealed statistical significance for long run growth, with the exception of sudden stop crisis for the post 1990 period.