Oil, Agriculture, and the Public Sector: Linking Intersector Dynamics in Ecuador

Resumen

In a recent paper, Fiess and Verner
\n (2000) analyse sectoral growth in Ecuador and find
\n significant long-run and short-run relationships between the
\n agricultural, industrial and service sectors. They take this
\n as evidence against the dual economy model which rules out a
\n long-run relationship between agricultural and industrial
\n output and show further that a more detailed picture of the
\n growth process can be discovered, once the agricultural,
\n industrial and service sectors are disaggregated further
\n into intrasector components. This paper extends their
\n initial results and provides insight from a multivariate
\n cointegration analysis of intrasector components. The
\n authors are able to identify three cointegrating
\n relationships, each of which has its own meaningful economic
\n interpretation: Two cointegration relationships capture the
\n direct and indirect effects of the "petrolization"
\n of the Ecuadorian economy. A third relationship clearly
\n indicates a link between agriculture and industrial
\n activity. Since this third cointegrating relationship seems
\n to coincide in time with the trade liberalisation at the end
\n of the 1980s, promoting agriculture appears to be an
\n important way to promote sustainable economic growth in Ecuador.