| A significant consequence of economic interdependence has been the informal dollarization of financial systems in many developing countries. Dollarization means that a popular foreign currency comes to perform the traditional functions of money in the domestic economy: unit of account, store of value, and medium of exchange. While dollarization produces benefits - including, typically, defense against inflation and stimulus to investment - it limits the ability of governments to raise revenue through the production of money, restricts the country's ability to conduct monetary and exchange rate policy, and increases exposure to foreign political coercion. My dissertation provides evidence that efforts to reduce dollarization spread among countries through economic connections among governments. The results of my quantitative analysis suggest that policies spread -- or "diffuse" -- among governments as a result of learning about how to craft policy. |
