Exchange Rate Regimes and Economic Performance in Resource-Dependent Economies
Exchange Rate Regimes and Economic Performance in Resource-Dependent Economies
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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