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Dollarization and Growth: An Application of the Synthetic Control Method to the Case of Ecuador

Author

Listed:
  • Leonardo Vera

    (Universidad Metropolitana-Venezuela and and FLACSO (Latin American Faculty of Social Sciences), Ecuador)

  • Bryan Perez

    (Escuela Politecnica Nacional-Ecuador)

Abstract

The debate on the potential impact of full dollarization for promoting economic growth has been controversial and based on limited empirical analysis. This work scrutinizes the impact of dollarization on real per capita GDP in Ecuador's experience. We apply a Synthetic Control Method, a transparent and data-driven statistical technique, aiming to construct an artificial control group and a plausible counterfactual against which impacts from dollarization could be evaluated as part of the historical record. We found that after the decision to officially dollarize was made in 2000, per capita GDP in Ecuador increased on average about 9.69 percentage points relative to the synthetic control country. Furthermore, this gap appears to show an inverted U-shape over time, which would indicate that the effects of dollarization on economic activity are very powerful at the beginning but fade out over time.

Suggested Citation

  • Leonardo Vera & Bryan Perez, 2025. "Dollarization and Growth: An Application of the Synthetic Control Method to the Case of Ecuador," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 11(1), pages 17-37, June.
    • Handle: RePEc:ana:journl:v:11:y:2025:i:1:p:17-37
    DOI: 10.22440/wjae.11.1.2
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    More about this item

    Keywords

    Dollarization; Synthetic Control Method; Per capita GDP; Ecuador;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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