Full dollarisation and economic performance revisited

This paper examines the economic performance of fully dollarised economies compared to those with alternative monetary regimes. Using an extensive dataset covering 192 countries from 1980 to 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 dollarised 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 dollarisation 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.