Unofficial Dollarization and Market Integration: The Case of Latin America (thesis)

Abstract

This study examines the relationship between unofficial dollarization and goods market integration in the context of dollarizing Latin American nations and the United States. While a breadth of research focuses on the integrating effects of official currency union, no authors have yet attempted to examine the associated link between "unofficial" currency unions and market integration. Using disaggregate price data to measure market integration and deposit dollarization data as a proxy for unofficial dollarization, we find that Latin American nations with higher levels of unofficial dollarization experience stronger market integration with the United States. Though these high dollarizing countries are more integrated with the United States, we find that this group is no more integrated on the whole than its low dollarizing counterpart.