Dollarization, Economic Growth, and Employment

Nelson Carrasco
Summary
Core Class
Monday, March 30th, 2009.



In Raimundo Soto´ paper “Dollarization, Economic Growth, and Employment” (*), the author established the effect on employment levels and economic growth, and the relationship between them, after the Government from Ecuador made the decision to eliminate the national currency and use American Dollar in its place. First, he introduces a brief point about the economic situation of Ecuador before and after dollarization. Second, he describes the Econometric Model used to analyze data, which consisted of a multivariable Log-linearizing equation of regression. Then, the author explains the main discoveries when he ran the model for the long and short term, which are high and positive correlations between employment levels and both the Gross Domestic Product and Real Exchanges Rate; on the other hand, the opposite effect was found for the Cost of Capital and Real Wages. He concluded by saying that the dollarization process of Ecuador has been controversial, because it has coexisted with two different effects, and said that in order to increase the employment levels the government will make policies which help the economic growth and avoid fixing a high minimum salary.

(*) Soto, R. (2008, April) Dollarization, Economic Growth, and Employment. Retrieved March 20, 2009, from CESL