For helpful comments and suggestions the authors wish to thank Michael Bordo,

The choice of exchange rate regime remains an important issue not only in international finance but also in development economics. While both the theoretical and empirical literatures have attempted to identify the most appropriate regime by examining the effect of regime choice on various macroeconomic and financial variables, neither has been able to provide a conclusive answer. In this paper, we pay special attention to effects of the level of development and use the new classification of de facto exchange rate regime by Reinhart and Rogoff (2004) to investigate the relationship between the choice of regime and the subsequent economic growth rate for developing Asian and advanced European countries. We discover two interesting regularities. First, for advanced European countries, the choice of regime does not seem to affect the rate of economic growth or its variability, although more flexible exchange regimes are associated with slightly higher growth rates. Second, for developing and emerging Asian economies, the choice of regime does affect the economic growth rate non-linearly–managed float outperforms other regimes – but do not affect the variability of growth. Our findings suggest that not only whether but also how the choice of exchange rate regime affects economic growth critically depends on the level of development of that economy