Date of Project

4-25-2020

Document Type

Honors Thesis

School Name

W. Fielding Rubel School of Business

Department

Economics

Major Advisor

Dr. Hongwei Song

Second Advisor

Dr. Francis E. Raymond

Third Advisor

Dr. Bradley Stevenson

Abstract

This paper explores the relationship between economic growth and exchange rate regimes among countries of lower income, lower middle income, upper middle income, and high-income countries. Countries must make careful consideration when choosing an exchange rate regime because each regime can have different long-term effects. A cross section pooled time series data will be used for a sample of 42 countries over the period of 2000-2018. Multiple models will examine the various relationships between types of exchange rate regimes, changes in exchange rate regimes, and economic growth. The components of the models being tested include political stability, change in terms of trade, population growth, investment/GDP, and exchange rate regime classification because they are all determinants of the robustness of a country’s economic growth. This paper used the pooled OLS model, fixed effects model, and random effects model as estimation strategy. This paper finds that changing from an intermediate regime to a floating regime is negatively correlated with economic growth while utilizing fixed and floating regimes are positively correlated with growth. Changing regime types in general is also negatively correlated with growth. Further research can be done to expand on these findings and include income classifications of the countries as an important determinant in growth and a time lag as a more accurate depiction of growth since the effects of changing regimes on growth may not be seen for multiple years.

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