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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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File URL: http://dx.doi.org/10.1353/mcb.2006.0016
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 1 (February)
Pages: 269-282

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:1:p:269-282

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References

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  1. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
  2. Alberto Alesina & Robert Barro & Silvana Tenreyro, 2002. "Optimal Currency Areas," Harvard Institute of Economic Research Working Papers 1958, Harvard - Institute of Economic Research.
    • Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356 National Bureau of Economic Research, Inc.
  3. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
  4. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, December.
  5. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 409-436, May.
  6. Bernhard, William & Broz, J. Lawrence & Clark, William Roberts, 2002. "The Political Economy of Monetary Institutions," International Organization, Cambridge University Press, vol. 56(04), pages 693-723, September.
  7. Zeljko Bogetic, 2005. "Official Dollarization: Current Experiences and Issues, Cato Journal, Vol. 20, No. 2 (Fall 2000), 179-213," International Finance 0510006, EconWPA.
  8. Joshua Angrist, 1999. "Estimation of Limited-Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Working papers 99-31, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Russell W. Cooper & Hubert Kempf., 2001. "Dollarization and the conquest of hyperinflation in divided societies," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-12.
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Citations

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Cited by:
  1. John Hawkins & Paul Masson, 2003. "Economic aspects of regional currency areas and the use of foreign currencies," BIS Papers chapters, in: Bank for International Settlements (ed.), Regional currency areas and the use of foreign currencies, volume 17, pages 4-42 Bank for International Settlements.
  2. Sebastian Edwards, 2011. "Exchange Rates in Emerging Countries: Eleven Empirical Regularities from Latin America and East Asia," NBER Working Papers 17074, National Bureau of Economic Research, Inc.
  3. Sebastian Edwards, 2006. "Monetary unions, external shocks and economic performance: A Latin American perspective," International Economics and Economic Policy, Springer, vol. 3(3), pages 225-247, December.
  4. Robin Brooks & Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Aasim M. Husain, 2004. "Evolution and Performance of Exchange Rate Regimes," IMF Occasional Papers 229, International Monetary Fund.
  5. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society.
  6. Cruz Rodriguez, Alexis, 2009. "Choosing and assessing exchange rate regimes: A survey of the literature," MPRA Paper 16314, University Library of Munich, Germany.
  7. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
  8. repec:onb:oenbwp:y::i:126:b:1 is not listed on IDEAS
  9. Andrew Swiston, 2011. "Official Dollarization As a Monetary Regime," IMF Working Papers 11/129, International Monetary Fund.
  10. Sokic, Alexandre & FABRIS, Nikola, 2013. "Euroization and cyclical stabilization in Montenegro: an empirical analysis," MPRA Paper 46537, University Library of Munich, Germany.
  11. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.
  12. Bedri Kamil Onur Tas & Selahattin Togay, 2008. "Effect of Dolarization on Macroeconomic Performance and Money-Price Relationship in Ecuador," Working Papers 0808, TOBB University of Economics and Technology, Department of Economics.
  13. Stanisic, Nenad, 2012. "Effects of international monetary integration on inflation, economic growth and current account," MPRA Paper 38938, University Library of Munich, Germany.

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