Intersectoral Dynamics and Economic Growth in Ecuador

Abstract

The frequent recommendation to exclude the oil sector from economic analysis may be short-sighted, as adverse shocks to the oil industry are likely to affect other sectors through the financial and public sectors, with which the oil sector has many links. There are also significant long-run relationships between the agricultural, industrial, and service sectors.

Fiess and Verner analyze sectoral growth in Ecuador using multivariate cointegration analysis. They find significant long-run relationships between the agricultural, industrial, and service sectors. Moreover, they are able to derive dynamic sector models that combine the short-run links between the three sectors with long-run dynamics.

When they disaggregate the three sectors into their intrasectoral components, they discover many interesting relationships that contribute to a better understanding of inter- and intrasectoral dynamics in the context of Ecuadorian economic growth.

Their findings suggest that more attention should be paid to interdependencies in sectoral growth, since an improved understanding of intersectoral dynamics may facilitate the implementation of policy aimed at increasing economic growth in Ecuador.

There appears to be no direct link between the oil sector and the non-oil industrial sectors. But strong evidence supports cointegration between the oil industry and financial services as well as between the oil industry and public services. This means, among other things, that the oil sector cannot be excluded from intersectoral growth analysis, because an adverse shock to the oil industry is likely to affect other sectors through the financial sector, the public sector, or both.

This paper - a product of the Economic Policy Sector Unit, Latin America and the Caribbean Region - is part of a larger effort in the region to investigate intersec-toral growth dynamics. The authors may be contacted at [e-mail] or [e-mail].