Comment on How Much Bang for the Buck?

Abstract

Applying a cross-country growth regression approach, the paper by Ross Levine and Maria Carkovic attempts to quantify the growth effects that might flow from providing a more stable nominal environment low and steady inflation and stable exchange rates. Thus, the paper focuses on one potential benefit of dollarization and sets aside a vast range of costs and benefits that would have to be weighed in making the policy decision. This topic is surely among the most important regarding dollarization: growth benefits that flow from dollarization could easily dwarf benefits or costs due, for example, to reduced countercyclical policy. The paper is another in a long line of outstanding contributions to cross-country growth analysis by Ross Levine with many coauthors.l These papers have documented the potential problems with cross-country growth regressions, have steadily improved the best practice in the area, and have documented that various aspects of financial development may be central to growth. This line of research has been very productive and very persuasive: financial development seems to be an important contributor to growth. My discussion will focus on three of the most important conclusions of the current paper: