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Dollarization and Economic Performance: What Do We Really Know?

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Author Info
Sebastian Edwards () (University of California, Los Angeles)
I. Igal Magendzo () (Central Bank of Chile)

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Abstract

In this paper we analyze the macroeconomic record of dollarized economies. In particular, we investigate whether, as its supporters’ claim, dollarization is associated with lower inflation and faster growth. We analyze this issue by using a matching estimator technique developed in the training evaluation literature. Our findings suggest that inflation has been significantly lower in dollarized nations than in non-dollarized ones. We also find that dollarized nations have had a lower rate of economic growth than non-dollarized ones. Finally, we find that macroeconomic volatility is not significantly different across dollarized and non-dollarized economies. We conjecture that the lower rate of economic growth in dollarized countries is due, at least in part, to these countries’ difficulties in accommodating external disturbances, such as major term of trade and capital flows shocks.

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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number 65.

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Date of creation: 01 Jul 2002
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Handle: RePEc:onb:oenbwp:65

Note: The paper includes comments by Luis Adalberto Aquino Cardona and by Hans Genberg.
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  4. Ilan Goldfajn & Gino Olivares, 2000. "Is adopting Full Dollarization the solution? Looking at the evidence," Textos para discussão 416, Department of Economics PUC-Rio (Brazil). [Downloadable!]
  5. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-25, July. [Downloadable!] (restricted)
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  13. Edwards, Sebastian, 2001. "Dollarization: Myths and realities," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 249-265, April. [Downloadable!] (restricted)
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  20. Michael W. Klein, 2002. "Dollarization and Trade," NBER Working Papers 8879, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. John Murray & James Powell, 2002. "Dollarization in Canada: The Buck Stops There," Technical Reports 90, Bank of Canada. [Downloadable!]
  2. Andreas Billmeier & Tommaso Nannicini, 2007. "Trade Openness and Growth: Pursuing Empirical Glasnost," IMF Working Papers 07/156, International Monetary Fund. [Downloadable!]
  3. Bedri Kamil Onur Tas & Selahattin Togay, 2008. "Optimal Monetary Policy for Postwar Iraq," Working Papers 0813, TOBB University of Economics and Technology, Department of Economics. [Downloadable!]
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