Dollarization in Haiti: Causes and Consequences

Abstract

The objective of this paper is to study the causes and consequences of financial dollarization in the Haitian economy for the period 1990-2006. Among the potential causes of dollarization, the study investigates the impact of high inflation, the imminence of a crisis, and larger openness of the economy. Among the potential consequences, the study focuses on trade movement, economic growth, and inflation. The empirical evidence shows that since the adoption of dollarization the economy has experienced higher inflation and lower growth with no noticeable increase in openness. These observed shortfalls are due for the most part to Delayed Reforms that Haiti is experiencing and to the lack of credibility of policymakers. However, it should be noted that the adoption of dollarization may well have restrained the negative impact of such shocks as an embargo, the hurricane, political unrest which have hit the economy during that period.