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Institutions and Macroeconomic Policies in Resource-Rich Arab Economies$
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Kamiar Mohaddes, Jeffrey B. Nugent, and Hoda Selim

Print publication date: 2019

Print ISBN-13: 9780198822226

Published to Oxford Scholarship Online: July 2019

DOI: 10.1093/oso/9780198822226.001.0001

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Exchange Rate Regimes and Economic Performance in Resource-Dependent Economies

Exchange Rate Regimes and Economic Performance in Resource-Dependent Economies

Chapter:
(p.183) 7 Exchange Rate Regimes and Economic Performance in Resource-Dependent Economies
Source:
Institutions and Macroeconomic Policies in Resource-Rich Arab Economies
Author(s):

Bassem Kamar

Raimundo Soto

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198822226.003.0007

This chapter presents empirical findings on the relationship between resource rents, alternative exchange rate regimes, and economic performance. It shows that resource abundance leads to higher growth, while oil dependency, captured by a high level of export concentration and/or being an oil exporter, reduces economic growth relative to diversified and/or non-oil exporters. Resource rents, including oil and gas, lead to higher inflation, while oil dependence has a dampening effect. The results confirm that exchange regimes matter for the long-term performance of a resource-rich economy (RRE). Countries with floating exchange regimes tend to have lower growth and higher inflation than those with intermediate exchange rate systems but being an oil exporter helps mute the inflationary effect of floating exchange rate regimes. On the other hand, while fixed exchange rates do not have a significant direct effect on growth, they help dampen the negative effect of inflation on growth and lead to lower inflation.

Keywords:   exchange rate regimes, oil dependency, economic growth, inflation

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