Monetary Integration: Thirteen Years of Dollarization on Ecuadorian Economics, 2000-2013

James Keeley¹  and Adam Kess²

¹International Business and Financial Mathematics, ICP, Universidad Espiritu Santo (UEES), Guayaquil, Ecuador, SA.2Financial Analyst, New York, USA.

²Research assistant at the University of South Carolina.

Corresponding author Email: jkeeley@uees.edu.ec

Accepted 16 January2013

Abstract

A considerable amount of research has been carried-out over the past decade regarding the effects of dollarization on an economy.   While only time will tell if dollarization continues to sustain positive long-term impacts, the short-term has provided considerable evidence of a very successful monetary integration. This research paper has analyzed the sustained effects of dollarization on the Ecuadorian economy which began in the year 2000.  As an additional variable, tourism and tourism rates were analyzed due to their reach into each of these sectors of the Ecuadorian economic system and as the fastest growing industry in Ecuador.  The Central Bank of Ecuador and related data sets reveal that dollarization has not only had a profoundly positive effect on Ecuadorian economics, but has decreased the poverty rates across the board for almost every province within the country.  Finally, this research also analyzes tourism rates measurable by visitors arriving over time based on a retroactive vacation package price in an attempt to determine whether dollarization and/or inflation played a role in the tourism industry.  A correlational regression determined that neither dollarization nor inflation play a significant role in the Ecuadorian tourism industry. Because tourism is a growing industry in Ecuador, this determination could have policy implications regarding local legislation, the career choice of tourism among students, and fiscal projection which ultimately will enhance the overall economic condition.  Based on the analysis of the variables presented in this research, thirteen years of dollarization has led to a stabilized economy, lower rates of inflation, and positive effects of GPD (trade) in this robust agriculture producing South American country.

Keywords: Tourism, Ecuador, Currency, US Dollar, Economy, Inflation, dollarization, economics.