Strict Dollarization and Economic Performace Revisited

We revisit the historical record of the economic performance of strictly dollarizedeconomies relative to that economies of non-dollarized economies as previously examined byEdwards (2001) and Edwards and Magendzo (2003, 2006). We extend their work to takeadvantage of the experience of more recently dollarized economies, employ a larger countrysample and a longer sample period, use panel as opposed to cross-section data, and employ avariety of econometric techniques, including to deal with potential endogeneity problems. Ourresults suggest that overall countries that adopted dollarization experienced higher average GDPgrowth rates and lower inflation rates and inflation volatility than countries that did not adoptdollarization. Moreover, even GDP growth appears to have been less volatile in dollarizedcountries in recent years.