Impact of external flows from the primary sector on manufacturing in Ecuador: empirical evidence from the Dutch Disease
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This study delves into the connection between the extractive sector and Ecuador's manufacturing landscape from 2000 to 2024, utilizing a VAR model that factors in oil exports, mining investments, public spending, and the real exchange rate. The findings indicate that the manufacturing sector enjoys a significant level of structural independence, accounting for about 80% of its long-term variability. However, the impulse-response functions demonstrate that shocks from oil exports and mining investments lead to moderate yet lasting contraction effects on manufacturing activities. Additionally, the variance decomposition highlights public spending as the primary external channel influencing the industry, while the impact of extractive variables appears to be quite limited. As a result, the study does not support the notion of a dominant structural deindustrialization process, but it does confirm that the manufacturing sector is cyclically vulnerable to external and fiscal shocks within Ecuador's dollarized economy.
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