What About the Impact of Dollarization on Poverty and Inequality?

Abstract

Dollarization, often used to stabilize economies facing macroeconomic instability, has been studied for its macroeconomic impacts. However, its socio-economic conse- quences remain largly unexplored. This study addresses this gap by estimating the causal effects of dollarization on poverty and inequality. Using a dynamic panel data approach, we find that increased dollarization leads to higher poverty and inequal- ity. We propose two potential pathways: an expanded informal sector and depressed consumption, due to dollarization.