Full dollarization and economic performance revisited

This paper examines the economic performance of fully dollarized economies compared to those with alternative monetary regimes. Using an extensive dataset covering 192 countries between 1980-2021, we employ a variety of econometric techniques, including Joint Maximum Likelihood and Propensity Score Matching, to address endogeneity and unobserved heterogeneity. Our findings show that fully dollarized economies exhibit higher and more stable GDP growth, alongside lower inflation and reduced volatility. These results are robust across multiple estimation methods and control groups. Contrary to previous studies, we demonstrate that full dollarization may be consistent with relatively higher GDP growth as well as lower and more stable inflation rates, challenging the widely held view that it leads to poor economic performance.