Strict Dollarization and Economic Performance: An Empirical Investigation

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.