Fixed Exchange Rate Regimes and Trade Growth Elasticity: Evidence from the United Arab Emirates and a Floating Regime Comparator

This study investigates the relationship between exchange rate regimes and international trade growth using the case of the United Arab Emirates (UAE), which operates a fixed peg to the U.S. dollar, and the United Kingdom (UK), which follows a floating regime. Using annual data from 2010–2024 sourced from the World Bank, International Monetary Fund, and World Trade Organization, the study applies time-series and panel econometric techniques to test the impact of exchange rate volatility, reserve adequacy, and regime type on trade growth. Results indicate that exchange rate volatility significantly reduces trade expansion, while foreign exchange reserves and GDP growth positively influence trade performance. The fixed regime dummy variable is positive and statistically significant, suggesting that exchange rate stability enhances trade growth in highly open economies. The study introduces the Trade-Elasticity Regime Hypothesis and proposes a Reserve Credibility Channel as mechanisms linking regime choice to trade performance.