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Dollarization and economic performance: What do we really know?
Author(s) -
Edwards Sebastian,
Magendzo I. Igal
Publication year - 2003
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.217
Subject(s) - economics , volatility (finance) , monetary economics , inflation (cosmology) , econometrics , theoretical physics , physics
In this paper we analyse 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 analyse 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 terms of trade and capital flows shocks. Copyright © 2003 John Wiley & Sons, Ltd.