Publication: Dollarization Dilemma: Price Stability at the Cost of External Competitiveness in Cambodia
Loading...
Files in English
777 downloads
Date
2019-06
ISSN
Published
2019-06
Editor(s)
Abstract
Cambodia has recorded both rapid economic growth and macroeconomic stability in recent decades despite (or thanks to) high levels of dollarization. Previous studies on dollarization in Cambodia have largely focused on examining its causes and estimating seigniorage losses. As an attempt to further explore the effects of dollarization in Cambodia, this paper examines its impact on the competitiveness of the export sector. The main results, based on a vector autoregression estimation of quarterly data over 1994Q4-2016Q4, indicate that a positive US interest rate shock has a negative impact on Cambodia's trade balance with the European Union, its main trading partner, as it leads to appreciation of the US dollar. Furthermore, this shock also leads to a significant decrease in Cambodia's international reserve levels during the first two quarters following the shock. The surrendering of monetary and exchange rate independence seems to affect the competitiveness of the tradable sector negatively as well as exacerbate financial sector vulnerability to solvency and liquidity risks.
Link to Data Set
Citation
“Samreth, Sovannroeun; Sanchez-Martin, Miguel Eduardo; Ly, Sodeth. 2019. Dollarization Dilemma: Price Stability at the Cost of External Competitiveness in Cambodia. Policy Research Working Paper;No. 8893. © World Bank. http://hdl.handle.net/10986/31906 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Asymmetric Bank Distress Amplifier of Recessions(Washington, DC: World Bank, 2025-07-11)One defining feature of financial crises, evident in U.S. and international data, is asymmetric bank distress—concentrated losses on a subset of banks. This paper proposes a model in which shocks to borrowers’ productivity dispersion lead to asymmetric bank losses. The framework exhibits a “bank distress amplifier,” exacerbating economic downturns by causing costly bank failures and raising uncertainty about the solvency of banks, thereby pushing banks to deleverage. Quantitative analysis shows that the bank distress amplifier doubles investment decline and increases the spread by 2.5 times during the Great Recession compared to a standard financial accelerator model. The mechanism helps explain how a seemingly small shock can sometimes trigger a large crisis.Publication From Tailwinds to Headwinds(Washington, DC: World Bank, 2025-07-10)The first quarter of the twenty-first century has been transformative for emerging market and developing economies (EMDEs). These economies now account for about 45 percent of global GDP, up from about 25 percent in 2000, a trend driven by robust collective growth in the three largest EMDEs—China, India, and Brazil (the EM3). Collectively, EMDEs have contributed about 60 percent of annual global growth since 2000, on average, double the share during the 1990s. Their ascendance was powered by swift global trade and financial integration, especially during the first decade of the century. Interdependence among these economies has also increased markedly. Today, nearly half of goods exports from EMDEs go to other EMDEs, compared to one-quarter in 2000. As cross-border linkages have strengthened, business cycles among EMDEs and between EMDEs and advanced economies have become more synchronized, and a distinct EMDE business cycle has emerged. Cross-border business cycle spillovers from the EM3 to other EMDEs are sizable, at about half of the magnitude of spillovers from the largest advanced economies (the United States, the euro area, and Japan). Yet EMDEs confront a host of headwinds at the turn of the second quarter of the century. Progress implementing structural reforms in many of these economies has stalled. Globally, protectionist measures and geopolitical fragmentation have risen sharply. High debt burdens, demographic shifts, and the rising costs of climate change weigh on economic prospects. A successful policy approach to accelerate growth and development should focus on boosting investment and productivity, navigating a difficult external environment, and enhancing macroeconomic stability.Publication Intergenerational Income Mobility around the World(Washington, DC: World Bank, 2025-07-09)This paper introduces a new global database with estimates of intergenerational income mobility for 87 countries, covering 84 percent of the world’s population. This marks a notable expansion of the cross-country evidence base on income mobility, particularly among low- and middle-income countries. The estimates indicate that the negative association between income mobility and inequality (known as the Great Gatsby Curve) continues to hold across this wider range of countries. The database also reveals a positive association between income mobility and national income per capita, suggesting that countries achieve higher levels of intergenerational mobility as they grow richer.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication Global Poverty Revisited Using 2021 PPPs and New Data on Consumption(Washington, DC: World Bank, 2025-06-05)Recent improvements in survey methodologies have increased measured consumption in many low- and lower-middle-income countries that now collect a more comprehensive measure of household consumption. Faced with such methodological changes, countries have frequently revised upward their national poverty lines to make them appropriate for the new measures of consumption. This in turn affects the World Bank’s global poverty lines when they are periodically revised. The international poverty line, which is based on the typical poverty line in low-income countries, increases by around 40 percent to $3.00 when the more recent national poverty lines as well as the 2021 purchasing power parities are incorporated. The net impact of the changes in international prices, the poverty line, and new survey data (including new data for India) is an increase in global extreme poverty by some 125 million people in 2022, and a significant shift of poverty away from South Asia and toward Sub-Saharan Africa. The changes at higher poverty lines, which are more relevant to middle-income countries, are mixed.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Resilient Growth, Persisting Inequality : Identifying Potential Factors Limiting Shared Prosperity in the Dominican Republic(World Bank Group, Washington, DC, 2015-01)The Dominican Republic (DR) has recorded exceptional growth over the past twenty years and has closed the gap with the Latin America and Caribbean (LAC) region. While in the early 1990s the DRs per capita income was only about 57 percent that in LAC, it has climbed to around 90 percent nowadays. However, the countrys ability to reduce poverty and improving equity has been less stellar. This note presents some stylized facts of the DR economy that might help understand this phenomenon. In doing so, the note addresses the following three questions: (i) Has growth been inclusive in the DR?; (ii) Why has the DR economy grown so rapidly?; and (iii) Why has growth not led to further improvements in equity? This note tentatively argues that some potential factors explaining the latter are the decline in real wages despite increasing productivity, special economic zones that are relatively isolated from the rest of the economy, and the States limited capacity for fiscal redistribution.Publication Crisis and Dollarization in Ecuador : Stability, Growth, and Social Equity(Washington, DC: World Bank, 2002-06)Early in 2000, Ecuador, confronted with a serious economic crisis, adopted the US dollar as its national currency, This book examines the conditions that led to this action, describing the repeated cycles of crisis and failed stabilization that fatally undermined confidence in the Ecuadorian sucre. The book then analyzes dollarization's initial results and its effects on inflation, growth, poverty, inequality, marginalization, gender, and the Ecuadoran family. It also puts the Ecuadoran experience with dollarization in an international perspective.Publication Measuring the Determinants of Backward Linkages from FDI in Developing Economies : Is it a Matter of Size?(World Bank Group, Washington, DC, 2015-01)The main focus of the paper is the measurement of the potential for externalities related to foreign direct investment. A series of novel proxies are drawn from the Enterprise Survey database of the World Bank-IFC and tested against hypotheses considered in the foreign direct investment literature. Using these proxies, an econometric assessment of the determinants of backward linkages in developing economies is presented. The results show that export-oriented foreign direct investment, wholly owned subsidiaries (as opposed to joint ventures), and foreign owned firms relying on foreign technologies are less likely to develop links with domestic companies. In addition, the analysis finds that some sectors (food, wood, auto, and auto-parts) are more prone than others (textiles and electronics) in developing backward linkages. Apart from the type of foreign direct investment and sector-specific characteristics, the size of the host economy matters. Foreign owned subsidiaries in most service oriented Caribbean islands buy a low percentage of inputs from domestic firms. This may be because in small islands there are not enough local suppliers with sufficient quality and capacity to meet the demands of multinationals. However, the paper presents the case of the Dominican Republic, the largest economy in the Caribbean, which has struggled to develop backward linkages because of the relative isolation of special economic zones from the rest of the economy.Publication Financial Dollarization and Central Bank Credibility(World Bank, Washington, DC, 2003-06)Why do firms and banks hold foreign currency denominated liabilities? The authors argue that foreign currency debt, by altering the effect of a devaluation on output, has a disciplining effect when the Central Bank's objectives differ from the social optimum. However, under imperfect information, bad priors about the Central Bank induce excess dollarization of liabilities, which in turn limits the ability of the Central Bank to conduct an optimal monetary policy. In addition the economy may become stuck in a "dollarization trap" in which dollarized liabilities limit the ability of agents to learn the true type of the monetary authority. The model has clear-cut policy implications regarding the taxation of foreign currency liabilities as a way to encourage perfect information and avoid dollarization traps. Moreover, it reinforces the existing argument for Central Bank independence. Finally, the authors believe this model to be consistent with a growing empirical literature on the determinants of foreign currency liabilities and their relationships to Central Bank credibility.Publication Does the Elimination of Export Requirements in Special Economic Zones Affect Export Performance?(World Bank, Washington, DC, 2016-10)Special economic zones, one of the most important instruments of industrial policy in developing countries, often feature export share requirements. That is, firms located in these zones are obliged to export more than a certain stated share of their output to enjoy the wide array of incentives available there, a practice prohibited by the World Trade Organization. This paper exploits the staggered removal of export requirements across products and over time in the special economic zones of the Dominican Republic to evaluate whether the importance of exports originating from the zones was affected by the elimination of export requirements. The findings show that entry increased among firms in special economic zones, while the average value of export transactions fell for existing exporters following the reforms. At the same time, continuous exporters were unaffected by the policy change, possibly because these firms were not constrained by the export requirement. Overall, special economic zones became more important with respect to the number of exporters based there but not in terms of the value of exports. The findings suggest that the elimination of performance requirements made it more attractive for firms to be based in special economic zones.
Users also downloaded
Showing related downloaded files
Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Implementation Know-how Briefs to Support Countries to Prioritize, Connect and Scale for a Digital-in-Health Future(Washington, DC: World Bank, 2023-08-18)Technology and data are integral to daily life. As health systems face increasing demands to deliver new, more, better, and seamless services affordable to all people, data and technology are essential. With the potential and perils of innovations like artificial intelligence the future of health care is expected to be technology-embedded and data-linked. This shift involves expanding the focus from digitization of health data to integrating digital and health as one: Digital-in-Health. The World Bank’s report, Digital-in-Health: Unlocking the Value for Everyone, calls for a new digital-in-health approach where digital technology and data are infused into every aspect of health systems management and health service delivery for better health outcomes. The report proposes ten recommendations across three priority areas for governments to invest in: prioritize, connect and scale. The Implementation Know-How Briefs serve as practical guides for countries as they implement the ten recommendations. Every Implementation Know-How Brief provides practical information to start planning and implementing how to implement the recommendations. It also contains key terminologies for those not familiar with a particular topic, provides key questions to ask, and a general orientation as to typical issues in these sectors. Topics covered are: 1.) Digital health assessments; 2.) Telemedicine and virtual health care; 3.) Private sector involvement in digital health; 4.) Interoperability in health sector; 5.) Data governance for health data; 6.) Cybersecurity for health sector; 7.) Digital health records; 8.) Determining value of digital technology in health; 9.) Certification and regulatory sandboxes for digital technologies in health; 10.) Workflow mapping for digital technology (re)design in health systems.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication IFC Annual Report 2011 : I Am Opportunity(Washington, DC: World Bank, 2011)This annual report of the IFC reviews the years accomplishments. IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by fi nancing private sector investment, mobilizing capital in international fi nancial markets, and providing advisory services to businesses and governments. We play a catalytic role by demonstrating the profi tability of investments in emerging markets. Established in 1956, IFC is owned by 182 member countries, a group that collectively determines our policies. Our work in more than 100 countries allows companies and fi nancial institutions in emerging markets to create jobs, generate tax revenues, improve corporate governance and environmental performance, and contribute to their local communities. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives.