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Volume 65 / Social Sciences

ECONOMICS: EUCADOR


DAVID W. SCHODT, Professor of Economics, St. Olaf College

BOTH THE DOLLARIZATION of the Ecuadorian economy in 2000, which helped to resolve a growing economic crisis (analyzed in La Banca Central en el entorno de la crisis financiera del Ecuador (item #bi2009000001#)), and the subsequent increase in the world price of petroleum contributed to improved economic performance in the early years of the new century. The rate of GDP growth, which was only 3 percent in 2000, had risen to peak of 8 percent by 2004. Inflation had fallen from nearly 100 percent in 2000 to a low of 3 percent by 2004. The current account balance moved from negative to positive over the same period.

However, sustained and equitable growth of the Ecuadorian economy remains heavily dependent on the price of petroleum. Efforts to diversify the economy away from its reliance on petroleum have met with limited success, although the articles by Sawers (item #bi2006002332#) and Korovkin (item #bi2006002342#) document the growth of the cut-flower industry as a notable exception. Sawer's article, in particular, examines the interplay of domestic policy and international factors behind the rapid growth of this industry. Although he does not develop the argument, his observation of parallels between the development of the cut-flower industry and the earlier banana industry merits further exploration. Korovkin's work complements that of Sawers by examining the implications of the industry for poverty reduction.

One consequence of dollarization is that external shocks, such as the recent fall in the price of petroleum, are swiftly translated into reductions in real output unless offset by other inflows of foreign exchange. Remittances, which had helped to fill this gap and which had accounted for up to 8 percent of GDP, have declined and are expected to fall sharply in 2009 as the world recession cuts into migrant workers' employment and earnings. The article "Remittances, Liquidity Constraints, and Human Capital Investments in Ecuador" (item #bi2009004608#) examines how families make use of this income and therefore what might be the social cost of its decline, reminding us that remittances, while providing foreign exchange, have immediate benefits for recipient families (complements La migración en el Ecuador: oportunidades y amenazas (item #bi2007004022#)).

Ecuador's need to diversify its economy, and to develop additional sources of foreign exchange, has raised questions about the environmental impacts of these policies. Recent demonstrations against Ecuador's new mining law, as well as the government's efforts to persuade the world to pay it for not exploiting petroleum in an environmentally sensitive area of the Amazon, are different expressions of these concerns. Two works address these questions. La "huella ecologica" de la dolarización (item #bi2007003215#) explores the effects of dollarization on the sustainability of the Ecuadorian economy, while La estructura biofísica de la economía ecuatoriana (item #bi2009000006#) applies a Material and Energy Flow Accounting (MEFA) methodology to analyzing the environmental costs of Ecuador's exports.

Tourism, particularly the growing ecotourism sector, has been viewed as an environmentally friendly industry, as a way of diversifying the economy, and as a source of foreign exchange. Una interpretacíon mesoeconómica del tourismo en Ecuador (item #bi2009000008#), makes an important contribution to our understanding of this sector by bringing to public attention the work of the Central Bank in creating satellite accounts for tourism (unfortunately work that was suspended in 2003).


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