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Strict Dollarization and Economic Performance: An Empirical Investigation

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  • Edwards, Sebastian
  • Magendzo, I. Igal

Abstract

In this paper we analyze the macroeconomic record of "strictly dollarized" economies. In particular, we investigate whether dollarized countries have historically exhibited faster growth and lower volatility than countries with a domestic currency. We analyze this issue by using a treatment regression analysis that estimates jointly the probability of being a dollarized country, and outcome equations. Our analysis indicates that the probability of being a dollarized country depends on regional, geographical, political, and structural variables. Our results also suggest that GDP per capita growth has not been statistically different in dollarized and in non-dollarized countries. We also find that volatility has been significantly higher in dollarized than in non-dollarized economies. These results are robust to the estimation technique, and to the sample used.

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  • Edwards, Sebastian & Magendzo, I. Igal, 2006. "Strict Dollarization and Economic Performance: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 269-282, February.
    • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:269-282
    DOI: 10.1353/mcb.2006.0016
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    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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