Impact of Fiscal Policy on Dollarization and Poverty Reduction (Cambodia Case Study)

Despite a poverty reduction policy set as a priority goal of the Royal Government of Cambodia (RGC) as agreed in the Millennium Development Goals in 2001, 35% of Cambodia's populations were living under the national poverty line (World Bank's assessment as of 2010). Given that Cambodia is a dollarized economy, there is limited freedom to employ monetary policy to tackle poverty; thus, fiscal policy has been used by the RGC to stimulate economic growth and solve other economic issues such as dollarization. The purpose of this study is to assess the effectiveness of fiscal policy on de-dollarization and poverty reduction policy.;In chapter 1, I analyze the impact of fiscal policy on the degree of dollarization in Cambodia. Fiscal policy in this study includes real total government expenditure, decentralization policy implementation and real expenditure on salary in riel. Our regression results show that all fiscal tools have the expected sign of coefficients, but only real government expenditure is robust. Therefore, dollarization matters over time can be tackled by increasing real government expenditure in riel. Implementation of decentralization should be reinforced through human resource development. In addition, salary expenditure in riel should be extended to the private sector.;In chapter 2, I analyze the impact of fiscal policy on poverty reduction, where expenditure on health care, education and agriculture are used for measurements. Regression result suggests that both real expenditure on health care and education are negatively correlated with real GDP per capita growth. This could be due to mismanagement of the fund and/or long term investment on education although these variables are not significant. In contrast, real expenditure on agriculture positively and significantly impacts real GDP per capita. This could be explained with the fact that about 80% of Cambodians are agrarians and agriculture sector accounts for 35% of GDP.;I take a further step in analyzing the Cambodian agriculture sector, which is the backbone of the Cambodian economy. Rice production was used as a benchmark of the impact of agriculture sector on Cambodian economy.;In chapter 3, I introduce additional ideas and models to use for further study of this research. Because the topic of this research paper is so broad, greater investigation is required to produce a more refined result and conclusion.