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Strict Dollarization and Economic Performance: An Empirical Investigation

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  • Sebastian Edwards
  • I. Igal Magendzo

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 GDP per capita growth has not been statistically different in dollarized and in non-dollarized ones. 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9820.

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Date of creation: Jul 2003
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Publication status: published as Edwards, Sebastian and I. Igal Magendzo. "Dollarization And Economic Performance: What Do We Really Know?" International Journal of Finance and Economics 8(4): 351-363, October 2003
Handle: RePEc:nbr:nberwo:9820

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  1. Joshua D. Angrist, 2000. "Estimation of Limited-Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," NBER Technical Working Papers 0248, National Bureau of Economic Research, Inc.
  2. Barro, Robert & Alesina, Alberto, 2002. "Currency Unions," Scholarly Articles 4551795, Harvard University Department of Economics.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
  8. Zeljko Bogetic, 2005. "Official Dollarization: Current Experiences and Issues, Cato Journal, Vol. 20, No. 2 (Fall 2000), 179-213," International Finance 0510006, EconWPA.
  9. 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.
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Cited by:
  1. Andrew Swiston, 2011. "Official Dollarization As a Monetary Regime," IMF Working Papers 11/129, International Monetary Fund.
  2. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.
  3. 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.
  4. Stanisic, Nenad, 2012. "Effects of international monetary integration on inflation, economic growth and current account," MPRA Paper 38938, University Library of Munich, Germany.
  5. 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.
  6. repec:onb:oenbwp:y::i:126:b:1 is not listed on IDEAS
  7. Sebastian Edwards, 2006. "Monetary Unions, External Shocks and Economic Performance: A Latin American Perspective," NBER Working Papers 12229, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. Cruz Rodriguez, Alexis, 2009. "Choosing and assessing exchange rate regimes: A survey of the literature," MPRA Paper 16314, University Library of Munich, Germany.
  11. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
  12. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 Latin American Meetings 196, Econometric Society.
  13. Sokic, Alexandre & FABRIS, Nikola, 2013. "Euroization and cyclical stabilization in Montenegro: an empirical analysis," MPRA Paper 46537, University Library of Munich, Germany.

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