Volume 8, Issue 4, August 2019, Page: 220-231
The Prospect of Dollarization in Nigeria: An Empirical Review
Uduakobong Edy-Ewoh, Department of Economics, Veronica Adeleke School of Social Sciences, Babcock University, Ilishan Remo, Nigeria
Babatunde Binuyo, Department of Economics, Veronica Adeleke School of Social Sciences, Babcock University, Ilishan Remo, Nigeria
Received: Jun. 13, 2019;       Accepted: Jul. 12, 2019;       Published: Jul. 26, 2019
DOI: 10.11648/j.ijber.20190804.17      View  352      Downloads  82
Dollarization has been perceived in literature as a strategy that could help emerging and developing economics achieve price stability via lower inflation rates occasioned by the adoption of a stronger currency. Supporters of dollarization also infer that the strategy has the ability to affect positively real economic variables such as growth and employment through its ability to lower interest rates, increase investment and eliminate currency risk thereby increasing international trade. In this study, we examined the effect of dollarization on selected macroeconomic variables in Nigeria from 1972 to 2017. Using simple regression models, we analysed the impact of real dollarization index on prime lending rates, inflation, unemployment, PCI, FDI, real GDP growth and total trade in Nigeria. Empirical results revealed that dollarization did not exert significant positive effect on the selected macroeconomic variables. The study therefore recommended that government should be intentional about putting measures in place to strengthen the Nigerian naira so that economic agents will see no need to hold their wealth in or transact with a foreign currency. This will discourage dollarization in Nigeria which is perceived to be a major driver of inflation in the country.
Dollarization, Prospect, Macroeconomic Variables, Nigeria
To cite this article
Uduakobong Edy-Ewoh, Babatunde Binuyo, The Prospect of Dollarization in Nigeria: An Empirical Review, International Journal of Business and Economics Research. Vol. 8, No. 4, 2019, pp. 220-231. doi: 10.11648/j.ijber.20190804.17
Copyright © 2019 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Nigerian Bureau of Statistics. (2018) Nigeria GDP Annual Growth Rate. available at https://www.nigerianstat.gov.ng/
Klein, M. W. (2002). Dollarization and Trade. National Bureau of Economic Research (NBER) Working Paper No. 8879. Available at http://www.nber.org/papers/w8879
Mengesha, L. (2014). The How, Why and What questions of Dollarization. The Empirical Economics Letters, 13 (7), 1-15.
Musoke, Z. (2017). An Empirical Investigation on Dollarization and Currency Devaluation: A Case Study of Tanzania. Economics. Discussion paper No. 2017-8 available at http://www.economics- ejournal.org/economics/discussionpapers/2017-8
Levy-Yeyeti, E. & Sturzenegger, F. (2001). To Float or to Trail: Evidence on the Impact of Exchange Rate Regimes. Universidad Torcuato di Tella.
Rose, A. (2000). One Money, One Market: The Effect of Common Currencies on Trade. Economic Policy: A European Forum. 30, 7-33.
Rose, A. & van Wincoop, E. (2001). National Money as a Barrier to International Trade: The Real Case for Currency Union. American Economic Review. 91 (2), 386-390.
Fabris, N & Vujanović, N. (2017). The Impact of Financial Dollarization on Inflation Targeting: Empirical Evidence from Serbia. Journal of Central Banking Theory and Practice, 2, 23-43.
Olayungbo, D. O & Ajuwon, K. T. (2015). Dollarization, Inflation and Interest Rate in Nigeria. CBN Journal of Applied Statistics. 6 (1), 241-261.
Omoh, G. (December 2, 2012). Dollarisation of the Nigerian Economy: Who is to blame? Vanguard. Available at https://www.vanguardngr.com/2012/12/dollarisation-of-the-nigerian- economy-who-is-to-blame-2/
Obianwu, C. (2015). CBN Clarifies Currency Substitution and Dollarization of the Nigerian Economy. Retrieved https://www.templars-law.com/wp-content/uploads/2015/08/CBN-clarifies-Currency-Substitution-and-Dollarisation-Chike-Obianwu.pdf
The Nation Newspaper (March 14, 2017). Reps to Probe Schools Collecting Fees in Foreign Currency. Retrieved from http://thenationonlineng.net/reps-probe-schools-collecting-fees-foreign- currency/
Yinusa, O. (2008). Between dollarization and exchange rate volatility: Nigeria's Portfolio Diversification Option. Journal of Policy Modeling, 30 (5), 811-826.
Nor, M. I. (2012). The Effect of Dollarization on Developing Economies: Lessons from Somalia’s Informal Market. Academic Research International. 2 (3), 591-597.
Honohan, P. (2007). Dollarization and Exchange Rate Fluctuations. World Bank Policy Research Working Paper 4172.
Arellano, C. & Heathcote, J. (2007). Dollarization and Financial Integration. Social Science Research Network. International Finance Discussion Papers Number 890.
Gale, D. & Vives, X. (2001). Dollarization, Bailouts and the Stability of the System. London School of Economics. Retrieved from https://blog.iese.edu/xvives/files/2011/06/45- Dollorization1.pdf
Calvo, G. A. & Vegh, C. A. (1992). Currency Substitution in Developing Economies: An Introduction. International Monetary Fund Working Paper No. 92/40: 73-95.
Effiom, L. & Samuel, U. P. (2010). The Currency Substitution Phenomenon: Is the Nigerian Economy Immune? Journal of Economic Theory. 1 (4), 9-13.
Feige, E. L. & Dean, J. W. (2002). Dollarization and Euroization in Transition Countries: Currency Substitution, Asset Substitution, Network Externalities and Irreversibility. Paper presented at the Fordham University International Conference on “Euro and Dollarization: Forms of Monetary Union in Integrating Regions” April 5 - 6, 2002, New York.
Balino, T. J., Adam B., & Eduardo B. (1999). Monetary Policy in Dollarized Economies. Occasional Paper 171. Washington: International Monetary Fund.
Encinas-Ferrer, C. (2015). The ABC of Dollarization. Universidad del Valle de Atemajac Plantel León. Retrieved from https://www.researchgate.net/publication/282176539
Schuler, K. (2000). Basics of Dolarization. Retrieved on Friday 09, 2016 from https://www.globalpolicy.org/pmscs/30435.html?tmpl=component&print=1&page
Musse, O. S. H & Echchabi, A. (2017). Dollarization in East Africa: Causes, Consequences, and Future Forecasts. Binus Business Review, 8 (1), 15-22.
Levy-Yeyati, E & Sturzenegger, F. (2001). Dollarization: A Primer. Introductory Chapter to Dollarization, edited by Levy-Yeyati, E and Sturzenegger, F. MIT Press.
Bogeti, Z. (1999) Official or "Full" Dollarization: Current Experiences and Issues. International Monetary Fund. Retrieved on Tuesday December 13, 2016 from http://www.geocities.ws/mugajava.geo/edisi04/bogdllr.htm
Tasseven O. (2017) The Link Between Dollarization and Its Determinants in Turkey. In: Dinçer H., Hacioğlu Ü. (eds) Risk Management, Strategic Thinking and Leadership in the Financial Services Industry. Contributions to Management Science. Springer.
Odajima K. (2017) Dollarization in Cambodia: Behavior of Households and Enterprises in a Highly Dollarized Environment. In: Kubo K. (eds) Dollarization and De-dollarization in Transitional Economies of Southeast Asia. IDE-JETRO Series. Palgrave Macmillan.
Mundel, R. A. (1961). A Theory of Optimum Currency Areas. The American Economic Review, 51 (4), 657-665.
Alesina, A. and Barro, R. J. (2001). Dollarization. American Economic Association (AEA) Papers and Proceedings 91 (2), 381-385.
Mckinnon, R. I. (2004). Optimum Currency Areas and Key Currencies: Mundell I versus Mundell II* Journal of Common Market Studies. 42 (4), 689–715.
Kenen, P. B. (1969), The Theory of Optimum Currency Areas: An Eclectic View, in R. A. Mundell and A. K. Swoboda, (eds.), Monetary Problems of the International Economy. University of Chicago Press: Chicago.
Moreno-Villalaz, J. L. (2005). Financial Integration and Dollarization: The Case of Panama. Cato Journal. 25 (1), 127-140.
Goldfajn, I., Olivares, G., Jeffrey, F., & Milesi-Ferretti, G. M. (2001). Full Dollarization: The Case of Panama. Economia. 1 (2), 101-155.
Hanke, S. H. (2017). Follow Panama: Dollarize. Retrieved from https://www.huffpost.com/entry/follow-panama-dollarize_b_7444282
Exportimportstatistics.com. (n.d). Panama. Available at http://www.exportimportstatistics.com/country-profile/Panama-profile.aspx
Goldfajn, I. & Olivares, G. (2001). Full Dollarization: The Case of Panama. Economia 1 (2); 101- 155.
Wang, S (2016). Examining the Effects of Dollarization on Ecuador. Council on Hemisphere Affairs.
Voices on the Border (2011). Ten Years Later- The Impact of Dollarization in El Salvador. Information and Analysis from El Salvador. Available at https://voiceselsalvador.wordpress.com/2011/06/08/ten-years-later-the-impact-of-dollarization-in el-salvador/
Isaac, M & Ike, M. (2016). Financial Sector Development and Dollarization in Emerging Economies. International Review of Financial Analysis. 46; 20-32.
Kessy, P. (2011). Dollarization in Tanzania: Empirical Evidence and Cross Country Experience. International Growth Centre London School of Economics.
Agwambo, N. J. (2013). A Comparative Analysis of Dollarization in Tanzania and Argentina. A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in fulfilment of the requirements for the degree of Masters of Management in Finance and Investment (MMFI).
Bogetic, Z. (2000). Official dollarization: Current experiences and issues. Cato Journal, 20 (2), 179-213.
Mengesha, L. G. & Holmes, M. J. (2015). Does Dollarization Reduce or Produce Inflation? Journal of Economic Studies, 42 (3); 358-376.
Mohamad, A. M & Mohamoud, M. O. (2016). The Effect of Dollarization on Economic Growth: The Case of Selected Financial Institutions in Hargeisa District, Somaliland. Thesis submitted to the department of Economics of Admas University, Hargeisa, Somaliland.
Fabris, N. & Galić, J. (2016). Ciljanje inflacije u zemljama sa dvovalutnim režimima. Meeting of Scientific Association of Economists, December. Belgrade: Scientific Association of Economists.
Mecagni, M., Corrales, J. S., Dridi, J., Garcia-Verdu, R., Imam, P., Matz, J., Macario, C., Maino, R.,…, Yehoue, E. (2015). Dollarization in Sub-Saharan Africa Experience and Lessons. International Monetary Fund Publication.
Kubo K. (2017) Dollarization and De-dollarization in Transitional Economies of Southeast Asia: An Overview. In: Kubo K. (eds) Dollarization and De-dollarization in Transitional Economies of Southeast Asia. IDE-JETRO Series. Palgrave Macmillan.
Mundaca, G. (2018). Central Bank Interventions in a Dollarized Economy: Managed Floating versus Inflation Targeting. Japanese journal of Statistics and Data Science. 55 (4); 1507–1535.
Harper, B. S., Harper, P. & Coronel, C. (2002). Dollarization: Making International Trade Seamless. The CPA Journal. 72 (1).
Okudaa, H. & Aibab, D. (2018). Capital Structure Decisions in a Highly Dollarized Economy: Evidence from Cambodian Firms. Journal of Asian Economics. 58; 1-18.
Lin, S. & Ye, H. (2007). Dollarization Does Promote Trade. Journal of International Money and Finance. 29 (6), 2010.
Adamu, M. B. (2016). Currency Substitution and The Demand for Money in Nigeria: 1980-2014. Unpublished Project Thesis Submitted to The School of Postgraduate Studies, Ahmadu Bello University, Zaria.
Anh, P. T. H. (2018). Zero Interest Rate for the US Dollar Deposit and Dollarization: The Case of Vietnam. In: Anh, L., Dong, L., Kreinovich, V. & Thach, N. (eds) Econometrics for Financial Applications. ECONVN 2018. Studies in Computational Intelligence, 760. Spring.
Akinkuotu, E. (June 26, 2018) With 87m Poor Citizens, Nigeria Overtakes India as World Poverty Capital. Punch Newspaper. Available at https://punchng.com/with-87m-poor-citizens-nigeria- overtakes-india-as-worlds-poverty-capital/
World Development Indicators (2018). Available at http://datatopics.worldbank.org/world- development-indicators/
International Monetary Fund (IMF) (1997). Exchange Rate Arrangements and Economic Performance in Developing Countries. Ch. 4 of World Economic Outlook.
Worldatlas (2018). What Is the Richest Country in Africa? Retrieved from https://www.worldatlas.com/articles/the-richest-countries-in-africa.html
United Nations Development Program, Human Development Report 2007/2008 (New York: Palgrave Macmillan, 2007).
Cypher, J. M. (2014). The Process of Economic Development. 4th Ed. Routledge Taylor and Francis Group, London.
Zoryan, H. (2005). The Measurement of Co-Circulation of Currencies and Dollarization in The Republic of Armenia. The European Journal of Comparative Economics 2 (1), 41-65.
Mengesha, L. G. & Holmes, M. J. (2011). The Dollarization of Less Developed Countries: A Note on the Computation of a Hard Currency Index. International Journal of Economics and Research. 2 (2), 61-66.
Mwase, N.& Kumah, F. Y. (2015). Revisiting the Concept of Dollarization: The Global Financial Crisis and Dollarization in Low-Income Countries. IMF Working Paper.
Browse journals by subject