Corporate leverage and interest rate sensitivity in dollarized vs. non-dollarized economies

January 1, 2026Open Access

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Key Points

This research aims to analyze how dollarization affects corporate responses to interest rate changes, particularly in Latin American economies.
Analyzed a balanced panel of 471 non-financial firms across six Latin American countries from 2015 to 2024.
Utilized firm and time fixed effects models to manage multicollinearity between domestic and U.S. interest rates.
Assessed sensitivity to U.S. and domestic interest rate changes among dollarized and non-dollarized firms.
Dollarized firms show a significantly increased sensitivity to U.S. interest rate changes (β5 = −0.905, p = 0.001).
A 1% increase in U.S. interest rates results in a 0.91 percentage point greater debt reduction in dollarized firms compared to non-dollarized firms.
Ecuadorian firms react more aggressively to U.S. rate changes (−1.168, p < 0.001) than U.S. firms (−0.178, not significant), indicating heightened responsiveness.

Investigates capital structure impacts of dollarization on interest rate responses in Latin America, suggesting significant vulnerabilities exist.

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Luis Alfredo Noboa Cardenas (2026) studied this question.

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