The economic history of Ecuador covers the development of Ecuador's economy throughout its history, beginning with colonization by the Spanish Empire, through independence and up to the 21st century. The Ecuador economy has historically and into the present been highly reliant on exports of primary resources. This has contributed to boom-and-bust cycles, as the economy fluctuates with shifts in resource prices. In the modern era, the Ecuador economy has been particularly affected by oil prices.
Colonial Ecuador relied on agriculture rather than mining that dominated the capitals of the Viceroys of Peru and Nueva Granada. The temperate climate of the Sierra was ideal for crop cultivation and the Costa became a top producer of cash crops, with Ecuador being one of the leading producers of cacao.
Ecuador's post-independence economy relied on a system of peonage by natives on lands of the plantation owners. The economy remained reliant on cash crops. It was subject to fluctuations corresponding with the international market, and instability was common. By the 1950s bananas had replaced cocoa beans as Ecuador's main export crop. After the 1950s, Ecuador's economy began experiencing a period of growth. Agriculture's importance in the economy shrank as the manufacturing and service sector of the economy grew. The discovery of petroleum in the eastern region of the country and natural gas in the Gulf of Guayaquil brought a large growth to government revenue, and rapid economic growth. The economic growth resulted in inflation, and the external debt of the country increased by 15 times in a period of 5 years.
With the fall of oil prices in the 1980s, the economy declined with traditional agricultural products losing market. The damage caused by El Niño from 1982–83 damaged farms and infrastructure. Pressure caused by inflation and foreign credit disappearing led to a shortage of government capital. An austerity program including the devaluation of the sucre proved unpopular domestically but allowed Ecuador to negotiate debt repayment with the International Monetary Fund and receive financial aid. By 1984 the economy had largely recovered, so Ecuador withdrew from the OPEC in order to increase oil revenue. A drop in international oil prices hurt the economy which was heavily reliant on petroleum production by this point. To remedy this, president León Febres Cordero entered office promising economic deregulation. He achieved this by reducing import quota and tariffs while encouraging foreign investment. The GDP growth rate recovered, but a drop in petroleum export prices led to a fiscal deficit and the economy neared crisis.
The 1987 Ecuador earthquakes destroyed large parts of the Trans-Ecuadorian Pipeline and oil production ceased for six months. The economy took a heavy hit as the older agricultural industries could not make up for the lack of petroleum profits. The government raised domestic gas prices by 80% and Ecuador acquired international loans to save the ailing economy. The election of Febres Cordero's rival Rodrigo Borja brought a period of government involvement in the economy. His national economic austerity program did little to help the already declining economy and proved unpopular among the populace resulting in strikes. Borja continued with his anti-inflationary program, but implemented economic liberalization programs to reduce criticism of his policies.
In 1992 the election of Sixto Durán led to the successful implementation of a few modernization reforms. His successor Abdalá Bucaram promised populist economic reforms, but they never came to be before he was unseated by Congress. The economy deteriorated in the second half of the decade leading to a financial crisis in 1999. President Jamil Mahuad announced the implementation of the U.S dollar as Ecuador's currency leading to coup d'état and his replacement with vice-president Gustavo Noboa. Noboa successfully implemented the dollar and Ecuador negotiated a stand-by program with the IMF. Ecuador's economy was slightly boosted by the heightening of oil prices from 2000-01.
Ecuador experienced economic growth over the period 2000–2014, owing to higher oil prices. The decline in oil prices from 2014 onwards (in particular during the COVID pandemic) substantially reduced GDP per capita (2019 GDP per capita was 6% lower than 2014 GDP per capita).
Colonial Ecuador Colonial Ecuador was governed first by the Viceroyalty of Peru and then by the Viceroyalty of Nueva Granada. Ecuador differed significantly from the viceroyalty centers (Lima and Bogotá), however, in that mining never became a vital part of the economy. Instead, crop cultivation and livestock raising dominated the economy, especially in the Sierra. The Sierra's temperate climate was ideal for producing barley, wheat, and corn. The Costa became one of the world's leading producers of cacao. Sugarcane, bananas, coconuts, tobacco, and cotton also were grown in the Costa for export purposes. Foreign commerce expanded gradually during the eighteenth century, but agricultural exports remained paramount. Manufacturing never became a significant economic activity in colonial Ecuador, but busy sweatshops, called obrajes, in Riobamba and Latacunga made Ecuador an exporter of woolen and cotton fabrics; a shipyard in Guayaquil was one of the largest and best in Spanish America; and sugar mills manufactured sugar, molasses, and rum made from molasses.
1830–1950 Ecuador gained complete independence in 1830, it had a largely rural population of about one-half million. The rural economy came to rely on a system of peonage, in which Sierra and Costa Indians were allowed to settle on the lands belonging to the hacendado, to whom they paid rent in the form of labor and a share of their crop. The economy of the new republic, based on the cultivation of cash crops and inexpensive raw materials for the world market and dependent on peonage labor, changed little during the remainder of the nineteenth and first half of the twentieth century. Vulnerable to changing international market demands and price fluctuations, Ecuador's economy was often characterized by instability and malaise.
The Ecuador economy was in crisis from the early 1920s to the late 1940s. Cacao exports halved from 1920 to 1923 due to disease. The Great Depression led to reduced value for Ecuadorian exports.
During the second half of the nineteenth century, cacao production nearly tripled, and total exports increased tenfold. As a result, the Costa became the country's center of economic activity. Guayaquil dominated banking, commercial, and export-import affairs. During the first two decades of the twentieth century, cacao exports continued to be the mainstay of the economy and the principal source of foreign exchange, but other agricultural products like coffee and sugar and fish products were also important exports. The decline of the cacao industry in the 1930s and 1940s, brought about by chronic pestilence and the loss of foreign markets to competitors, had debilitating repercussions for the entire economy. During the 1950s, government-sponsored replanting efforts contributed to a partial revival of the cacao industry, so that by 1958 Ecuador was the world's sixth leading exporter of cacao.
As cacao dominated the coast, the Andean region continued to produce for local consumption, and opposed free trade, as its agriculture and textile industries depended on economic protections from foreign competitors. Around the time that cacao became central to the national economy, Ecuador's Amazon region became dominated by the rubber boomMatthew Ford, Liberalismo en la Selva: La vorágine del caucho, el trabajo indígena y la transformación del Oriente Ecuatoriano en La Era del Imperio y las fronteras de la civilización, 1870s-1930s. Alberto Harambour, Margarita Serje (eds.) Bogotá y Santiago: Ediciones UniAndes y Editorial Pehuén, 2023. https://www.academia.edu/48836551/Liberalismo_en_la_Selva_La_vorágine_del_caucho_el_trabajo_indígena_y_la_transformación_del_Oriente_Ecuatoriano . Unlike cacao, rubber did not produce much local development nor strengthen the state. The central government did try to expand its power over the Amazon region in order to take advantage of rubber export revenues.Matthew Ford, "The Rubber Economy in the Ecuadorian Amazon," Ángela Vergara (ed.), The Oxford Research Encyclopedia of Latin American History (Dec 2023). https://academic.oup.com/edited-volume/61800/chapter/546347498?searchresult=1 Like elsewhere in Amazonia, the rubber boom included violent enslavement of local people.Robert Wasserstrom, "Waorani Warfare on the Ecuadorian Frontier, 1885-2013" The Journal of Latin American and Caribbean Anthropology 21, no. 3 (Nov. 2016). https://anthrosource.onlinelibrary.wiley.com/doi/10.1111/jlca.12217
There was a banana boom in the 1940s. By the early 1950s bananas had replaced cocoa beans as the country's primary export crop.
1950–1980 The Ecuadorian economy made great strides after 1950, when annual exports, 90 percent of which were agricultural, were valued at less than US$30 million, and foreign-exchange reserves stood at about US$15 million. Between 1950 and 1970, a slow, steady expansion of nonagricultural activities took place, especially in the construction, utilities, and services sectors. Construction, for example, made up only 3 percent of the GDP in 1950, but it contributed 7.6 percent to the GDP in 1971. Agriculture's annual share of the GDP was 38.8 percent in 1950 compared with a 24.7 percent share in 1971.
The 1960s saw an acceleration and diversification of the manufacturing sector to meet domestic demand, with an emphasis on intermediate inputs and consumer durable goods. By 1971 these accounted for about 50 percent of industrial output. Still, manufactured products—mainly processed agricultural goods—made up only about 10 percent of Ecuador's exports in 1971. Industry was still at an early stage of development, and about 50 percent of the labor force worked in agriculture, forestry, and fishing. Traditional industries, such as food processing, beverages, and textiles, were largely dependent on agriculture. The small size of the domestic market, the high production cost in relation to available external markets, and an undeveloped human, physical, and financial infrastructure all combined to limit the expansion of consumer durable goods in the Ecuadorian economy.
The discovery of new petroleum fields in the Oriente (eastern region) after 1967 transformed the country into a world producer of oil and brought large increases in government revenue beginning in 1972. That year saw the completion of the Trans-Ecuadorian Pipeline, a 503-kilometer-long oil pipeline leading from the Oriente to the port city of Esmeraldas. A refinery also was constructed just south of Esmeraldas. In addition, in 1970 large quantities of natural gas deposits were discovered in the Gulf of Guayaquil. Largely because of petroleum exports, Ecuador's net foreign-exchange earnings climbed from US$43 million in 1971 to over US$350 million in 1974.
The production and export of oil that began in the early 1970s, coupled with dramatic international price increases for petroleum, contributed significantly to unprecedented economic growth. Real GDP increased by an average of more than 9 percent per year during 1970 to 1977 as compared with only 5.9 percent from 1960 to 1970. The manufacturing sector alone experienced a 12.9 percent average annual GDP real growth rate during 1975–77. Ecuador became a lower middle-income country, although it remained one of the poorer countries of South America. Economic growth had negative side effects, however. Real imports increased by an annual average of 7 percent between 1974 and 1979; this spawned an inflationary pattern that eroded income. During the same period, the country's external debt grew from US$324 million to about US$4.5 billion.
1980–1990