Impact of Exchange Rate Regimes on Economic Growth

It has been a challenge to identify a direct correlation between exchange rate regimes and economic growth. One of the most important issues left unanswered in international finance is the debates over which type of exchange rate can best stimulate economic growth. The main hypothesis of this research is that fixed exchange rate regime will have positive correlation with GDP growth due to the stability factor it has to offer. Control variables used in this study include inflation rate, gross capital formation (%GDP), index of government spending, and index of human capital per person. After observing the data from 74 countries for year 2012, it is found that there is a positive and significant correlation between pegged exchange rate and growth in GDP