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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. Robert J. Barro, 1996. "Determinants of Economic Growth: A Cross-Country Empirical Study," NBER Working Papers 5698, National Bureau of Economic Research, Inc.
  2. Barro, Robert & Alesina, Alberto, 2002. "Currency Unions," Scholarly Articles 4551795, Harvard University Department of Economics.
  3. 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.
  4. 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.
  5. Beck, T.H.L. & Levine, R. & Loayza, N., 2000. "Finance and the sources of growth," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125520, Tilburg University.
  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. Bernhard, William & Broz, J. Lawrence & Clark, William Roberts, 2002. "The Political Economy of Monetary Institutions," International Organization, Cambridge University Press, Cambridge University Press, vol. 56(04), pages 693-723, September.
  8. Russell W. Cooper & Hubert Kempf., 2001. "Dollarization and the conquest of hyperinflation in divided societies," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-12.
  9. Zeljko Bogetic, 2005. "Official Dollarization: Current Experiences and Issues, Cato Journal, Vol. 20, No. 2 (Fall 2000), 179-213," International Finance, EconWPA 0510006, EconWPA.
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Cited by:
  1. Stanisic, Nenad, 2012. "Effects of international monetary integration on inflation, economic growth and current account," MPRA Paper 38938, University Library of Munich, Germany.
  2. John Duffy & Maxim Nikitin, 2004. "Dollarization Traps," Econometric Society 2004 North American Summer Meetings 456, Econometric Society.
  3. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 28(2), pages 37-61, October.
  4. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
  5. Sokic, Alexandre & FABRIS, Nikola, 2013. "Euroization and cyclical stabilization in Montenegro: an empirical analysis," MPRA Paper 46537, University Library of Munich, Germany.
  6. Tavlas, George & Dellas, Harris & Stockman, Alan C., 2008. "The classification and performance of alternative exchange-rate systems," European Economic Review, Elsevier, Elsevier, vol. 52(6), pages 941-963, August.
  7. Sebastian Edwards, 2006. "Monetary Unions, External Shocks and Economic Performance: A Latin American Perspective," Working Papers, Bank of Greece 43, Bank of Greece.
  8. Jeffrey A. Frankel & Shang-Jin Wei, 2004. "Managing Macroeconomic Crises," NBER Working Papers 10907, National Bureau of Economic Research, Inc.
  9. repec:onb:oenbwp:y::i:126:b:1 is not listed on IDEAS
  10. Bedri Kamil Onur Tas & Selahattin Togay, 2008. "Effect of Dolarization on Macroeconomic Performance and Money-Price Relationship in Ecuador," Working Papers, TOBB University of Economics and Technology, Department of Economics 0808, TOBB University of Economics and Technology, Department of Economics.
  11. 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.
  12. 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.
  13. Andrew Swiston, 2011. "Official Dollarization As a Monetary Regime," IMF Working Papers 11/129, International Monetary Fund.

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