Working Paper: NBER ID: w8879
Authors: Michael W. Klein
Abstract: 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.
Keywords: No keywords provided
JEL Codes: F15; F33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Dollarization (F31) | Trade with the United States (F19) |
| Currency Union Membership (F36) | Trade with the United States (F19) |
| Dollarization (F31) | Trade with the United States (in Western Hemisphere) (F19) |
| Fixed Dollar Exchange Rate (F31) | Trade with the United States (F19) |
| Dollarization (with Australian Dollar) (F31) | Trade with small island nations (F19) |