Do exchange rate regimes contribute to export diversification in Africa?
Avom, Désiré
Do exchange rate regimes contribute to export diversification in Africa? - 2021.
47
The choice of an exchange rate regime remains a pressing issue for contemporary economies, along with the question of what factors determine export diversification in developing countries. This article, therefore, examines the contribution of exchange rate regimes to the level of export diversification in African countries. Using de jure and de facto classifications, and a non-parametric econometric approach based on propensity score matching, we show that fixed exchange rate regimes are associated with lower diversification levels than intermediate or flexible regimes. This effect operates mainly through the extensive margin, since relatively slow price adjustments in fixed regimes dampen incentives to produce new goods. The results are even more clear when: (i) countries are better endowed with natural resources, (ii) the quality of institutions is lower, and (iii) countries belong to the Franc Zone. This article therefore highlights the importance of institutional quality in mitigating the adverse effects of fixed exchange rate regimes on incentives to produce new goods.JEL codes: C23, E42, F1, Q32.
Do exchange rate regimes contribute to export diversification in Africa? - 2021.
47
The choice of an exchange rate regime remains a pressing issue for contemporary economies, along with the question of what factors determine export diversification in developing countries. This article, therefore, examines the contribution of exchange rate regimes to the level of export diversification in African countries. Using de jure and de facto classifications, and a non-parametric econometric approach based on propensity score matching, we show that fixed exchange rate regimes are associated with lower diversification levels than intermediate or flexible regimes. This effect operates mainly through the extensive margin, since relatively slow price adjustments in fixed regimes dampen incentives to produce new goods. The results are even more clear when: (i) countries are better endowed with natural resources, (ii) the quality of institutions is lower, and (iii) countries belong to the Franc Zone. This article therefore highlights the importance of institutional quality in mitigating the adverse effects of fixed exchange rate regimes on incentives to produce new goods.JEL codes: C23, E42, F1, Q32.
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