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An empirical inquiry into the role of sectoral diversification in exchange rate regime choice

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  • Chowdhury, Mohammad Tarequl H.
  • Bhattacharya, Prasad Sankar
  • Mallick, Debdulal
  • Ulubaşoğlu, Mehmet Ali

Abstract

Whether sectoral diversification affects the exchange rate regime choice and the mechanisms through which this effect might work are largely unknown. This study identifies two mechanisms through which sectoral diversification and exchange rate regime choice may be related, namely the external shock absorption and rent-seeking mechanisms. A direct effect of diversification on regime choice is also hypothesized. Using a panel dataset covering 91 countries over the period 1985–2006, the paper runs a ‘horse race’ among these potential channels. The results show that diversification is associated with flexible regimes in countries experiencing greater external shocks. Additionally, countries characterized by higher levels of corruption and lower levels of diversification opt for fixed regimes, suggesting that a fixed regime may shield the powerful elites from international competition. There is also weak evidence of the direct effect of diversification in adopting flexible regimes.

Suggested Citation

  • Chowdhury, Mohammad Tarequl H. & Bhattacharya, Prasad Sankar & Mallick, Debdulal & Ulubaşoğlu, Mehmet Ali, 2014. "An empirical inquiry into the role of sectoral diversification in exchange rate regime choice," European Economic Review, Elsevier, vol. 67(C), pages 210-227.
  • Handle: RePEc:eee:eecrev:v:67:y:2014:i:c:p:210-227
    DOI: 10.1016/j.euroecorev.2014.02.001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Liu, Xiaohui & Zhang, Jing, 2015. "Export diversification and exchange-rate regimes: Evidences from 72 developing countries," MPRA Paper 66448, University Library of Munich, Germany.
    2. repec:bla:obuest:v:79:y:2017:i:5:p:747-768 is not listed on IDEAS
    3. Emran, M. Shahe & Shilpi, Forhad, 2014. "Land Market Restrictions, Women's Labor Force Participation and Wages," MPRA Paper 57989, University Library of Munich, Germany.
    4. M. Shahe Emran & Forhad Shilpi, 2017. "Land Market Restrictions, Women's Labour Force Participation and Wages in a Rural Economy," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(5), pages 747-768, October.
    5. Martins Iyoboyi & Ummu Ahmad Jalingo & Ahmad Tsauni, 2016. "Impact of Institutions on Macroeconomic Performance in Nigeria: 1980-2013," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 2(3), pages 193-221.
    6. repec:eee:ecmode:v:69:y:2018:i:c:p:281-290 is not listed on IDEAS
    7. Chau, Tak Wai, 2015. "Identification through Heteroscedasticity: What If We Have the Wrong Form of Heteroscedasticity?," MPRA Paper 65888, University Library of Munich, Germany.
    8. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Maarten van Rooij, 2015. "Consumption Uncertainty and Precautionary Saving," CSEF Working Papers 421, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    9. Chowdhury, Mohammad Tarequl Hasan & Bhattacharya, Prasad Sankar & Mallick, Debdulal & Ulubaşoğlu, Mehmet Ali, 2016. "Exchange rate regimes and fiscal discipline: The role of trade openness," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 106-128.
    10. Gnangnon, Kimm & Moser, Constance Besse, 2014. "Intellectual property rights protection and export diversification: The application of utility model laws," WTO Staff Working Papers ERSD-2014-19, World Trade Organization (WTO), Economic Research and Statistics Division.

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