1. IPOL 8661 Trade and Development
Victoria Powell

2.  Ecuador
 What is Dollarization?
 Literature Review
 Research Model
 Conclusions
 Policy Implications
 Questions

3. The Lost
Decade
1990’s Dollarization

5. Official
Partial
De
Jure
Unofficial
Full
De
Facto

6. Pros
• Absence of crisis
and speculative
attacks
• Closer integration
in World economy
• Strong financial
institutions
Cons
• Loss of seignorage
revenues
• No autonomous
monetary and
exchange rate
policy
• No LOLR

7. • Broad country Base
• Dollarization as a process
• Some correlation to other economic
indicators
General
Effects of
Dollarization
• Uses various definitions of
“dollarization”
• Historical and Political contexts
Dollarization
and Latin
America
• Before and after analysis based on
Official Date
• Loosely links dollarization to other
economic indicators
Dollarization
and Ecuador
 De Jure and
De Facto
 Substantial
Links

9. Net bilateral aid flows from DAC
donors; United States (US dollar)
Net ODA received per capita (US
dollar)
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
1950 1960 1970 1980 1990 2000 2010 2020
0
5
10
15
20
25
1960 1970 1980 1990 2000 2010

10. Trade with the U.S
 Has increased
 33%
Trade (% of GDP)
30
35
40
45
50
55
60
65
70
75
80
1960 1970 1980 1990 2000 2010

11. Before Dollarization After Dollarization
1995 1996 1997 1998 1999
Real GDP
growth
rate 2.1 3 5.2 2.2 5.7
Export
Growth 10.7 1.2 5.7 4.1 5.9
Import
Growth 7.4 9.7 18.4 13.3 36.4
Inflation 22.8 25.6 30.7 43.4 60.7
Unemplo
yment 7.7 10.4 9.3 11.5 15.1
Budget
Deficit
GDP 0.8‐0.4 ‐1.2 ‐0.6 ‐0.6
Current
Account
GDP 3.6‐0.7 ‐3.0 ‐9.3 ‐4.6
2000 2001 2002 2003 2004 2005
Real GDP
growth
rate 0.9 5.5 3.8 2.3 6.3 3
Export
Growth -3.2 7.8 5.4 8.5 5.8 n.a.
Import
Growth 5.3 2.2 0.9 2.4 1.9 n.a.
Inflation
Rate 91 22.4 9.4 6.1 2 4.4
Unemplo
yment 14.1 10.4 8.6 9.8 11 9.7
Budget
deficit/G
DP 0.1 ‐3.2 ‐0.6 1.2 ‐0.1 0.9
Current
account/
GDP 5.3 3.2 ‐4.9 ‐1.7 ‐0.5 ‐0.8

12.  Attempts to analyze development implications of Official
Dollarization in Ecuador by comparing actual data sets
with hypothetical data sets derived from unofficial
dollarization and exchange rate trends.
 Scenario 1
 Actual data from IMF
 Scenario 2
 Data derived from a modest interpretation of dollarization
trends
 Scenario 3
 “Hard Peg”
 Beneficial
 Argentinean style

13. Independent
Variables
• Exchange
Rate
• Dollarization
Dependent
Variables
• Inflation
• Development
Indicators
• GDP
• Poverty

16.  Continual increased usage of dollar
 Continual increased inflation
 Weak banking system
 Continued unemployment
 This is a contentious issue
 More likely there would be a reduction of WR
 Decrease in U.S. aid

17.  Increased
Unemployment
 Increased Inflation
 Deepening of Recession
 Lack of Remittances
Possible Implications

18.  Dollarization was it Positive for Development
Ecuador?
 Better Banking
 Fiscal rigor
 Workers Remittances
 Key Factors
 Oil exporting (OPEC)
 Trade with the US? (aid)
 Political viability

19.  Projections difficult to establish
 Only highly correlated statistical indicators is inflation
 Lack of currency data