NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Dollarization and Trade

Michael W. Klein

NBER Working Paper No. 8879
Issued in April 2002
NBER Program(s):   IFM   ITI

Dollarization has been suggested as a policy that might, among other goals, promote trade between a country adopting the dollar and the United States. Evidence supporting this conjecture could be drawn from a recent series of papers by Rose and co-authors who show that a currency union increases bilateral trade among its members, and that this effect is both large and statistically significant. In this paper we show that this result is not robust if we consider bilateral United States trade (even though the United States accounts for 60 percent of all observations of currency unions between industrial and non-industrial countries), nor if we consider bilateral trade of countries that have adopted the United States dollar, like Panama. Furthermore, the effect of dollarization on trade with the United States is not statistically distinct from the effect of a fixed dollar exchange rate on trade with the United States.

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Document Object Identifier (DOI): 10.3386/w8879

Published: Klein, Michael W. "Dollarization And Trade," Journal of International Money and Finance, 2005, v24(6,Oct), 935-943. citation courtesy of

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