Publication Name
Project Document
Year of Publication
2010
Organization Name
Economic Commission for Latin America and the Caribbean
Agencia Española de Cooperación Internacional para el Desarrollo
Acronym
ECLAC
AECID
Publisher
ECLAC
City
Santiago de Chile
Country of Publication
Chile
Considered Countries
Ecuador
Category
Reports
Theme
BILATERAL RELATIONS UE - LAC
Country - European Union
BIREGIONAL RELATIONS UE - LAC
Agreements
Keyword(s)
European Union
Economic Relations
Economy
Trade
Poverty
Agriculture
Integration
Agreement
Abstract
This research proposes to quantify the effects of a trade agreement with the European Union on
poverty in Ecuador. Both poverty and the signing of a trade agreement with the EU are issues under
discussion in Ecuador. Ecuador seeks to sign a trade agreement with the EU given their
complementarities in trade: the EU is a major market for Ecuadorian agricultural and fish products,
and Ecuador imports mainly manufacturing goods from the EU. In particular, the EU is the main
market for the main agricultural export product of Ecuador: bananas.
The transmission mechanisms to study these issues include changes in commodity prices, wages
and earnings, and labor market demands. This research combines a reduced-form micro household
income and occupational choice model with a standard single-country computable general equilibrium
model (CGE) for Ecuador. This study highlights that a trade agreement with the EU may have a different
impact on poverty depending on the degree of initial tariff reduction, on labor market considerations, and
on whether better access to Ecuadorian bananas is granted by the negotiations or not. Through trade
liberalization there is a significant increase in imports from the EU, particularly in protected sectors.
With better access for bananas to the EU market, investment constraints may mean that increasing export
and production of bananas can be achieved by pulling resources (namely production and labor) out from
other sectors. Nearly every scenario of trade agreement leads to a decline in extreme poverty in rural
regions. In contrast, extreme poverty in urban regions may increase.
poverty in Ecuador. Both poverty and the signing of a trade agreement with the EU are issues under
discussion in Ecuador. Ecuador seeks to sign a trade agreement with the EU given their
complementarities in trade: the EU is a major market for Ecuadorian agricultural and fish products,
and Ecuador imports mainly manufacturing goods from the EU. In particular, the EU is the main
market for the main agricultural export product of Ecuador: bananas.
The transmission mechanisms to study these issues include changes in commodity prices, wages
and earnings, and labor market demands. This research combines a reduced-form micro household
income and occupational choice model with a standard single-country computable general equilibrium
model (CGE) for Ecuador. This study highlights that a trade agreement with the EU may have a different
impact on poverty depending on the degree of initial tariff reduction, on labor market considerations, and
on whether better access to Ecuadorian bananas is granted by the negotiations or not. Through trade
liberalization there is a significant increase in imports from the EU, particularly in protected sectors.
With better access for bananas to the EU market, investment constraints may mean that increasing export
and production of bananas can be achieved by pulling resources (namely production and labor) out from
other sectors. Nearly every scenario of trade agreement leads to a decline in extreme poverty in rural
regions. In contrast, extreme poverty in urban regions may increase.
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