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IPOL 8661 Trade and Development
Victoria Powell
Ecuador and Impacts of Official Dollarization
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EcuadorWhat is Dollarization?Literature ReviewResearch Model ConclusionsPolicy ImplicationsQuestions
Outline of Presentation
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Ecuador’s Background
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Exports
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What is Dollarization?
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Pros and Cons of Dollarization
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Lit Review
De Jure and De Facto
Substantial Links
Research Gaps
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Infl
ation an
d R
eal G
DP
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Net bilateral aid flows from DAC donors; United States (US dollar)
Aid FlowsNet ODA received per capita (US dollar)
1950 1960 1970 1980 1990 2000 2010 20200
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100
5
10
15
20
25
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Trade with the U.SHas increased33%
Trade
Trade (% of GDP)
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 201030
35
40
45
50
55
60
65
70
75
80
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Before Dollarization
Other indicators
After Dollarization
1995 1996 1997 1998 1999Real GDP growth rate 2.1 3 5.2 2.2 5.7Export Growth 10.7 1.2 5.7 4.1 5.9Import Growth 7.4 9.7 18.4 13.3 36.4Inflation 22.8 25.6 30.7 43.4 60.7Unemployment 7.7 10.4 9.3 11.5 15.1Budget Deficit GDP 0.8 ‐0.4 ‐1.2 ‐0.6 ‐0.6Current Account GDP 3.6 ‐0.7 ‐3.0 ‐9.3 ‐4.6
2000 2001 2002 2003 2004 2005Real GDP growth rate 0.9 5.5 3.8 2.3 6.3 3
Export Growth -3.2 7.8 5.4 8.5 5.8n.a.
Import Growth 5.3 2.2 0.9 2.4 1.9n.a.
Inflation Rate 91 22.4 9.4 6.1 2 4.4
Unemployment 14.1 10.4 8.6 9.8 11 9.7Budget deficit/GDP 0.1 ‐3.2 ‐0.6 1.2 ‐0.1 0.9Current account/GDP 5.3 3.2 ‐4.9 ‐1.7 ‐0.5 ‐0.8
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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 1Actual data from IMF
Scenario 2Data derived from a modest interpretation of
dollarization trendsScenario 3
“Hard Peg”BeneficialArgentinean style
Research Design
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Research Model: Units
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De Facto Dollarization
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Liquid Assets
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Continual increased usage of dollarContinual increased inflationWeak banking systemContinued unemployment
This is a contentious issueMore likely there would be a reduction of WR
Decrease in U.S. aid
Continued De Facto Dollarization
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Increased Unemployment
Increased InflationDeepening of
RecessionLack of Remittances
Hard PegPossible Implications
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Dollarization was it Positive for Development Ecuador?Better BankingFiscal rigor
Workers RemittancesKey Factors
Oil exporting (OPEC)Trade with the US? (aid)Political viability
Policy Implications
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Projections difficult to establishOnly highly correlated statistical indicators is
inflationLack of currency data
Stumbling Blocs
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Questions