Can dollarization constrain a populist leader? The case of Rafael Correa in Ecuador

New working paper that studies how dollarization constrained the left-leaning populist regime of Rafael Correa in Ecuador (2007 - 2017).


Absher, Grier, and Grier (2020) find that durable left-leaning populist regimes in Latin America produce significant economic costs. However, there is an exception: Ecuador under Rafael Correa’s presidency. Edwards (2019) argues that left-leaning populist regimes monetize their spending. Ecuador would be a particular case because it has a dollarized economy. Domingo Cavallo (2021), for instance, says there is no doubt that dollarization played a central role in avoiding Ecuador becoming the Venezuela of Hugo Chávez and Nicolás Maduro.

In this paper, co-authored with Alex Salter (Texas Tech University) and Ignacio Savanti (Universidad del CEMA), we study how dollarization constrained Rafael Correa’s presidency (2007 and 2017).

Abstract

Rafael Correa’s presidency in Ecuador (2007 – 2017) exemplifies left-leaning populist regimes in Latin America. However, there is a key difference: Ecuador is a dollarized economy. This removes the possibility of fiscal dominance over monetary policy as is common in populist regimes. This paper studies how dollarization constraints a populist leader. We discuss the incentives of a budget constraint immune to monetization and the failed attempt to launch a national digital currency.

Download from SSRN


Nicolás Cachanosky
Nicolás Cachanosky
Associate Professor of Economics

N. Cachanosky | MSU Denver

comments powered by Disqus