Exchange rate regimes and export performance of developing countries

The aim of this study is to analyse the net effects of developing countries' choice of exchange rate regime on their exports. The issue should be highly relevant for policy-makers since export-led growth is often put forward as a main development strategy for these countries. This is also the reason why we focus on developing countries' exports rather than on their total trade, since analysing the latter would not enable us to separate the effects on exports from the effects on imports. We classify different exchange rate regimes into six categories, ranging from single currency pegging to independently floating. Dummy variables for these exchange rate regime categories are then included in a gravity model, which is estimated in cross-sections of bilateral export flows for more than 100 developing countries. Our results indicate that the more flexible the exchange rate regime, the greater the exports of developing countries. In the next section, we briefly discuss the role of exchange rate regimes and exchange rate policies for exports of developing countries. Section 3 presents the classification of exchange rate regimes and introduces a gravity model for estimating the export effects of different exchange rate regimes. Section 4 presents and discusses the results. Finally, in Section 5, the study is summarised.