Acknowledgements: We have benefited from useful comments and suggestions by Sofoklis Brissimis, George

Abstract: Empirical studies on the growth impact of exchange rate regimes have reported mixed results on the sign and significance of this effect. The present paper introduces in this literature the claim by Acemoglu et al. (2005) that economic development is shaped by conflicts between social groups with differential political power. To this end, we examine whether the growth effect of exchange rate regimes depends on domestic political competition. We test this prediction using a panel dataset of 160 countries that covers the period 1975-2006, taking into account the endogeneity of the exchange rate regime choice. We find that fixed exchange rate regimes are directly associated with higher growth, but floating exchange rate regimes are more beneficial to growth as political competition increases