The exchange rate is one of the crucial and effective variables in the economy of countries and contributes to the current and future economic conditions of every country significantly and undeniably by impacting many economic variables. Thus, selecting an optimal exchange system is imperative for countries. This study has investigated effective economic and political factors in selecting exchange regimes in three groups of developing countries, i.e., low- income countries, lower-middle-income countries, and upper-middle- income countries in the 2000-2018 period using the logit panel method. The results showed that for the lower-middle-income countries, the escalation of the trade balance increased the likelihood of selecting a floating exchange rate regime, and the uptrend of the Human Development Index (HDI) decreased the probability of choosing a floating exchange rate regime. Concerning the lower- middle-income countries, the upsurge of civil liberties and HDI diminished the likelihood of selecting a floating exchange regime, and the rise of the inflation rate increased the possibility of choosing a floating exchange regime. Finally, considering the third group, i.e., upper-middle-income countries, the increase in the Gross Domestic Product (GDP) made the selection of a floating exchange regime more likely, and the HDI elevation enhanced the probability of selecting a fixed exchange rate.

Keywords