Epsilon Archive for Student Projects

Abstract

This thesis examines whether the 2021 Bitcoin Law, introduced within El Salvador’s pre-existing dollarization, had any measurable effect on remittance inflows. Using a Difference-in-Differences design, the study compares El Salvador to the Philippines—a country with similarly high remittance dependence, a shared colonial legacy under Spanish rule, and broadly comparable institutional foundations, but unaffected by the reform—over the period 1990–2023. The analysis focuses on remittances per capita in natural logarithmic form and includes covariates such as GDP per capita and pandemic effects. The baseline model finds no statistically significant effect of the reform. In contrast, the fully adjusted model yields a large and marginally significant increase in remittances; however, the magnitude appears implausible given survey data and macroeconomic indicators. A placebo test using pre-treatment years supports the parallel trends assumption. Overall, the findings suggest that Bitcoin adoption did not meaningfully alter remittance behavior in the short term, highlighting the limitations of legal mandates in changing financial habits without enabling conditions. The study contributes to the literature on digital currency reforms by isolating a remittance-specific outcome and offering insights into the behavioral constraints of financial digitalization.