Short-term Macroeconomic and Poverty Impacts of the Global Economic Crisis on the Ecuadorian Economy

This study quantifies the economic and poverty impacts of the 2008-2009 world crisis on Ecuador, including the effects of the main policy responses of the Ecuadorian Government to face the crisis. The main hypothesis highlights the magnitude of two transmission channels: trade (through a percentage fall in oil export prices, fuel import prices, and the world price of some manufacturing export products) and remittances. The study applies a single-country static computable general equilibrium model for Ecuador combined with a microsimulation model. Preliminary results suggest that the import restriction policy adopted by the Government did not necessarily relieve the economy from the global economic crisis, but instead, depending on the labor market assumption, may have increased negative income impacts. There are differentiated poverty impacts of the crisis: poverty increases if labor is assumed sector specific, but it may be reduced if labor were mobile. From a distributional point of view, the impacts of the crisis were progressive, affecting more negatively households in the highest income quintile. A key channel of transmission is the fall in capital returns and wages of skilled labor. These factors are used intensively in the oil sector, a key sector of the Ecuadorian economy, and one of the hardest hit by the global crisis.