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ALBA-TCP: Hur långt ifrån ett optimalt valutaområde?

Berggren, Olle LU (2011) NEKK01 20111
Department of Economics
Abstract
This essay analyses to what extent the Latin American countries of Bolivia, Cuba, Ecuador, Nicaragua and Venezuela, within the Bolivarian Alliance for the Peoples of Our America – Peoples’ Trade Treaty (ALBA-TCP), fulfil the criteria for an optimum currency area (OCA). It does so by applying the theory of optimum currency areas (Mundell 1961), and by examining the different factors of asymmetric shocks, openness, production diversification and labour flexibility.

The essay finds that the countries within ALBA-TCP do not satisfactory fulfil the criteria of an OCA today. With Venezuela and Ecuador being net exporters of petroleum, while Nicaragua, Bolivia and Cuba are net importers, the correlation of business cycles within the... (More)
This essay analyses to what extent the Latin American countries of Bolivia, Cuba, Ecuador, Nicaragua and Venezuela, within the Bolivarian Alliance for the Peoples of Our America – Peoples’ Trade Treaty (ALBA-TCP), fulfil the criteria for an optimum currency area (OCA). It does so by applying the theory of optimum currency areas (Mundell 1961), and by examining the different factors of asymmetric shocks, openness, production diversification and labour flexibility.

The essay finds that the countries within ALBA-TCP do not satisfactory fulfil the criteria of an OCA today. With Venezuela and Ecuador being net exporters of petroleum, while Nicaragua, Bolivia and Cuba are net importers, the correlation of business cycles within the organisation is found to be weak and the risk for asymmetric shocks to be substantial. The countries are also found to have low levels of trade within the organisation, low levels of export diversification and intra-industry trade, as well as low levels of labour mobility.

For Ecuador, that today is using the American dollar as official currency, the costs are expected to exceed the benefits in terms of transaction costs if the country decides to join a monetary union within ALBA-TCP and with a common official currency under the Sistema Unitario de Compensación Regional de Pagos (SUCRE) initiative. Moreover, Venezuela is found to have the lowest level of openness to trade with other member countries, as well as the severest problems with relatively high levels of unemployment and inflation. Since Venezuela is the dominating economy within the organisation, this is also expected to cause problems of credibility, difficulties with low inflation targeting and economic instability for a common central bank within ALBA-TCP. (Less)
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author
Berggren, Olle LU
supervisor
organization
course
NEKK01 20111
year
type
M2 - Bachelor Degree
subject
keywords
ALBA-TCP, Latinamerika, optimala valutaområden, SUCRE, valutaunion
language
Swedish
id
2152673
date added to LUP
2011-09-27 13:08:09
date last changed
2011-09-27 13:08:09
@misc{2152673,
  abstract     = {This essay analyses to what extent the Latin American countries of Bolivia, Cuba, Ecuador, Nicaragua and Venezuela, within the Bolivarian Alliance for the Peoples of Our America – Peoples’ Trade Treaty (ALBA-TCP), fulfil the criteria for an optimum currency area (OCA). It does so by applying the theory of optimum currency areas (Mundell 1961), and by examining the different factors of asymmetric shocks, openness, production diversification and labour flexibility.

The essay finds that the countries within ALBA-TCP do not satisfactory fulfil the criteria of an OCA today. With Venezuela and Ecuador being net exporters of petroleum, while Nicaragua, Bolivia and Cuba are net importers, the correlation of business cycles within the organisation is found to be weak and the risk for asymmetric shocks to be substantial. The countries are also found to have low levels of trade within the organisation, low levels of export diversification and intra-industry trade, as well as low levels of labour mobility.

For Ecuador, that today is using the American dollar as official currency, the costs are expected to exceed the benefits in terms of transaction costs if the country decides to join a monetary union within ALBA-TCP and with a common official currency under the Sistema Unitario de Compensación Regional de Pagos (SUCRE) initiative. Moreover, Venezuela is found to have the lowest level of openness to trade with other member countries, as well as the severest problems with relatively high levels of unemployment and inflation. Since Venezuela is the dominating economy within the organisation, this is also expected to cause problems of credibility, difficulties with low inflation targeting and economic instability for a common central bank within ALBA-TCP.},
  author       = {Berggren, Olle},
  keyword      = {ALBA-TCP,Latinamerika,optimala valutaområden,SUCRE,valutaunion},
  language     = {swe},
  note         = {Student Paper},
  title        = {ALBA-TCP: Hur långt ifrån ett optimalt valutaområde?},
  year         = {2011},
}