The paper explores the interconnections between foreign capital flows and the exchange rate regime switching in developing countries. We formulate the exchange rate regime switching as annual time series of binary/ordered variables employing de facto classification of exchange rate arrangements...

We test a simple model of exchange rate regime choice with data for non-OECD countries covering the period 1980-94. We find the variance of output at home and in potential target countries as well as the correlation between home and foreign real activity are powerful and robust predictors of...