Dollarization and trade

A series of papers by Andrew Rose and co-authors showing large and statistically significant effects of a currency union on bilateral trade supports the view that dollarization would promote trade between a country adopting the dollar and the United States. This paper presents results that cast doubt on the trade-enhancing effects of dollarization among those countries most likely to adopt this policy. Currency unions do not significantly promote bilateral trade of Western Hemisphere countries that have experience with dollarization, nor do they affect bilateral United States trade with non-industrial countries or with Western Hemisphere countries. (c) 2005 Elsevier Ltd. All rights reserved.