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