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Growth, Clusters, and Convergence in Ecuador: 1993–2011

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DOI: 10.1007/978-3-642-39674-8

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Chapter 14 1

Growth, Clusters, and Convergence 2

in Ecuador: 1993–2011 3

Marlon G. Ramón-Mendieta, Wilman S. Ochoa-Moreno, 4

and Diego A. Ochoa-Jiménez 5

14.1 Introduction 6

Empirical research undertaken in Ecuador to study the country’s regional dynamics 7

uses the region as a unit of observation. Prior to 2007, Ecuador had 22 provinces 8
(which would later be called regions). This study seeks to ascertain whether the 9
regional growth and economic concentration that are evident in Ecuador are 10
determining factors in the development of regional convergence. 11
The results obtained show sufficient empirical evidence of the economic growth 12
process in Ecuador and the consequences that it has for the economic integration of 13
the country’s regions. The available literature suggests that spatial economic 14
concentration is a basic characteristic of regional development processes. In view 15
of this, the purpose of this study is to examine the interaction among the country’s 16
regions. 17
In 1956, Solow and Swan developed -separately but with many similarities- an 18
economic growth model in which they identified a specific type of convergence. 19
This approach was crucial for the development of a number research projects on 20
economic convergence. These models are known as neoclassical exogenous growth 21
models. Later, Arrow (1962) discussed the role played by externalities in capital 22
accumulation. In 1986, Baumol analyzed the viability of the economic convergence 23
model, concluding that such convergence only was observed in developed countries 24
and that the underdeveloped nations would follow a pattern of divergence. Experts 25
sought out a theory that would back his findings. A technological parameter was 26
incorporated as an endogenous variable, and endogenous growth models were born. 27
When convergence among developing countries was not found using the Solow and 28
Swan model, an alternative model was developed to explain the possibility of a 29
divergence in economic growth. Several studies (Romer 1986, 1990, and Lucas 30

M.G. Ramón-Mendieta (*) • W.S. Ochoa-Moreno (*) • D.A. Ochoa-Jiménez

Department of Economics, Universidad Técnica Particular de Loja, Loja, Ecuador
e-mail: [email protected]; [email protected]; [email protected]

J.R. Cuadrado-Roura and P. Aroca González (eds.), Regional Problems and Policies in
Latin America, Advances in Spatial Science, DOI 10.1007/978-3-642-39674-8_14,
© Springer-Verlag Berlin Heidelberg 2014
 M.G. Ramón-Mendieta et al.

31 1988) that facilitated the emergence of these latter models appeared in the late
32 1980s and early 1990s.
33 Quah (1996, 1997) incorporated the idea of the influence of space into the study
34 of regional transaction dynamics. The author compared the influence of national
35 and spatial determinants on the well-being of European regions and reached the
36 conclusion that spatial factors are more important than national ones. It was found
37 that regional growth is due to the fact that the economic trajectory of a country or
38 region is not solely and exclusively explained by its key aggregate variables but
39 also by the regions that comprise it.
40 This study consists of an introduction and four other sections. The second
41 section offers an overview of Ecuador and its regions. In Sect. 14.3, we estimate
42 the sigma and beta convergence equations. In the fourth section, we present general
43 results on regional clusters and growth. Finally, the fifth section contains some final
44 remarks.

45 14.2 The Physical Features of Ecuador

46 In 1830, Ecuador joined the movement for Latin American Independence,

47 emerging from Spanish Colonial rule with a government structure based on three
48 areas called departamentos. At the end of the nineteenth century, the country was
49 administratively and politically structured into 16 territorial units known as
50 provinces. In the mid-twentieth century, that number increased to 20. The twenty-
51 first century began with 22 provinces, and as of 2007 Ecuador had 24 such units
52 (which is currently the case).
53 The key feature of the young nation was the economic division that existed
54 between the regions. This can be attributed mainly to the coastal areas’ early focus
55 on agricultural exports, the emphasis on grain and bean production for domestic
56 consumption in the mountain regions, and the eastern areas’ emphasis on crops for
57 local consumption (Ramón 2011).
58 Given that export activities experienced a major boom, the agricultural sector
59 posted strong growth. Rapid entry into foreign markets triggered by exports of
60 agricultural products was the hallmark of the era. As a result, Ecuador based its
61 economic growth model on exports of agricultural products (cocoa, rice, coffee,
62 etc.). By the end of World War II, Ecuador was exporting large quantities of
63 bananas mainly to Europe, where the country was gradually increasing its presence
64 and expanding overseas sales to other markets. In the early 1970s, the country
65 changed its growth model to one of import substitution. At the time, it was argued
66 that this transition was a result of the nationalist surge being experienced in Ecuador
67 and other Latin American countries. With the advent of the oil boom of the 1980s,
68 Ecuador again shifted its economic model, this time focusing its efforts on that
69 activity. In short, the growth model that has prevailed in the country since the
70 beginning of the Republican Era has been agricultural export.
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

Map 14.1 Evolution of the territorial division of Ecuador

Ecuador has experienced strong territorial dynamism since from its birth (1830), 71
and the number of provinces in the nation has steadily increased. In Ecuador’s 72
181-year history as a republic, it has seen the creation of 24 provinces. On average, 73
a new province has been formed every 7.5 years. One could thus argue that the 74
country has undergone spatial subdivisions that have characterized it as having 75
strong territorial dynamics since its inception. 76
A key aspect of the country’s territorial configuration has been ongoing disputes, 77
quarrels, and armed conflicts. While the country initially occupied a triangle-shaped 78
area that included parts of modern-day Colombia, Peru, and Brazil, its current 79
territory is smaller than what it once was (Ramón 2011) (Map 14.1). 80 AU1

14.3 Convergence Processes in Ecuador 81

The results of this research study are based on information provided by the National 82
Statistics and Census Institute (INEC) and the Central Bank of Ecuador (BCE). 83
INEC data1 focus on the Ecuadorian population while BCE numbers2 refer to Gross 84
Value Added (GVA). 85

1
Ecuador had 21 provinces until 1997. Orellana was founded in 1998. The INEC conducted the
first Population and Housing Census in 2001, which yielded the first population data set. The BCE
did the same with the GVA that year.
2
This led to the first GVA data; therefore, this province will be subject to study as of 2001.
 M.G. Ramón-Mendieta et al.

86 Note that the provinces of Santa Elena and Santo Domingo de los Tsáchil as will
87 not be included in this study because they were founded in 2007 and data were not
88 available.
89 The population data used in this study was prepared by the INEC based on the
90 fifth and sixth Population Censuses and the fourth and fifth Housing Censuses (1990
91 and 2001, respectively). The projections for the other years also were developed by
92 the INEC. However, GVA data are incomplete for 1994, 1995, 1997, 1998, 2000,
93 2008, 2009, 2010, and 2011. The numbers for those years were determined using
94 the exponential interpolation method. Once the set was complete, the data were
95 arranged in a linear function (using logarithms) to generate per capita provincial
96 accounts for the country.
97 The information generated will be used to determine the classical convergence
98 equations sigma and beta. The following equation was used to identify disparity in
99 per capita income (sigma convergence):
sffiX
ffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
n
i¼1
ðlnGVApcit " lnGVApct Þ2
(14.1)
n
100 in which lnGVApcit is the logarithm of per capital value added in region i in year t,
101 lnGVApct is the logarithm of per capita GVA of Ecuador as a whole (equivalent to
102 a weighted average of the per capita regional GVA), and n corresponds to the
103 number of regions studied. Two estimates were used to determine sigma
104 convergence:
105 1. An estimate for 21 regions(Orellana is excluded);
106 2. An estimate for 20 provinces (excluding the Galápagos and Orellana).
107 Orellana is excluded in the second estimate because it is home to large-scale oil
108 extraction operations. The Galápagos is excluded because it is a major tourist
109 attraction, particularly for foreign visitors. Oil and tourism could affect the disper-
110 sion of national income. The sigma convergence is shown in Fig. 14.1.
111 In this first estimate, one can observe that the dispersion of income declines in
112 the long term, which means that there is less regional inequality. In other words,
113 national income tends to converge between regions. The figure establishes four
114 stages:
115 1. Greater inequality is indicated from 1993 to 1996.
116 2. Less inequality in indicated from 1996 to 2004.
117 3. A slight increase in inequality is registered between 2004 and 2007.
118 4. There is a reduction in inequality between 2007 and 2011.
119 The first stage (1993–1996), which corresponds to a small incremental change of
120 the slope, indicates an increase in inequality. Possible reasons for this include the
121 presence of a neoliberal type government during that period which based part of its
122 management plan on an aggressive policy of privatizations with the argument of
123 modernizing the state. This sparked social upheavals that led to strikes and national
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

Fig. 14.1 Sigma

convergence of per capita
GVA in Ecuador (excluding
Orellana)

work stoppages as well as the first national uprising of indigenous peoples. In 1995, 124
Ecuador was immersed in the “Alto Cenepa” conflict with Peru, and as a result a 125
considerable amount of financial resources were earmarked for that situation at the 126
expense of strategic sectors for national development. The effects of this situation 127
included social unrest, price hikes, capital flight, and higher interest rates for loans. 128
The second moment (1996–2004), which corresponds to a decline in the slope, 129
indicates less inequality. The factors that may have contributed to this situation 130
include increased revenue from remittances entering the country as a result of the 131
beginning of large-scale emigration and its subsequent boom (1999). In addition, 132
the GVA growth rate was higher during this period. This was mainly due to the 133
increase in oil prices beginning in 2000 following the application of a structural 134
change in the local monetary economy that allowed the free circulation of the 135
U.S. dollar. While this initially this made Ecuadorian exports less competitive, it 136
was an important element in reducing inflation to single-digit figures in the domes- 137
tic economy. This strategy was accompanied by decisions regarding how to manage 138
public policies with the establishment of subsidies for the most vulnerable sectors 139
along with public spending aimed at creating assets for industrial and trade com- 140
petitiveness and social services. 141
National tax collection levels increased and though almost half of the private 142
banks went under in 1998 and 1999, the national government assumed the debt, 143
which led to a decline in income disparities. Finally, the political sphere was the big 144
loser, as no constitutional period between 1996 and 2006 ended without vice 145
presidential successions or military interventions. 146
The third stage (2004–2007), in which the slope increased slightly, was marked 147
by an upturn in income inequality. One of the main causes was the weather. 148
Ecuador faced a natural disaster known as El Niño, which swept away several 149
large sections of the coast and the Ecuadorian seaboard. This led to a drop in exports 150
of some of the main products of the country’s trade balance (mainly bananas and 151
shrimp). Meanwhile, as a result of tougher laws in the countries in which they work, 152
Ecuadorians living abroad began to send fewer remittances home. As their work 153
and legal statuses stabilized, they began to take steps toward family reunification, 154
which also reduced remittances sent to Ecuador. 155
 M.G. Ramón-Mendieta et al.

Fig. 14.2 Sigma

convergence of per capita
GVA in Ecuador (excluding
Orellana and Galápagos)

156 The fourth stage (2007–2011) was characterized by a decline of the slope,
157 suggesting that inequality had decreased. The reasons for this are varied; however,
158 one important explanation is that Rafael Correa assumed the presidency and
159 introduced a new approach to social policy. The main feature of this period is
160 that considerable quantities of financial resources were earmarked for the poorest
161 sectors of society through increasing the Human Development Dividend (which
162 increased from USD 15 to USD 35). The government began to provide free
163 medicine, built new health care clinics and improved existing ones, offered services
164 and financial bonuses to people with disabilities, and introduced other programs.
165 The evidence suggests that the income disparity between the provinces has
166 decreased as a result of these efforts to increase income and improve the quality
167 of life of the poorest sectors of society (Fig. 14.2). AU2
168 The second estimate shows a decrease in long term income dispersion with less
169 regional inequality. This shows that the trend in Ecuadorian national income levels
170 is toward a convergence. Based on the figure, seven stages can be identified:
171 1. There is greater inequality between 1993 and 1996,
172 2. There is less inequality between 1996 and 1999,
173 3. Inequality increases between 1999 and 2000,
174 4. Inequality decreases between 2000 and 2004,
175 5. There is greater inequality between 2004 and 2007,
176 6. Inequality decreases from 2007 to 2008,
177 7. Inequality increases between 2008 and 2011.
178 The factors discussed in the previous projection will recur in this estimate. In
179 general, it can be noted that the level of dispersion in per capita income has
180 declined. However, it has not been constant over time as documented by the
181 increases and decreases in inequality. Having excluded Galápagos from the analy-
182 sis, it is believed that this region strongly affected income inequality since it
183 receives a considerable volume of resources from tourism, especially, foreign
184 visitors.
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

Table 14.1 Ecuadorian beta β (value t) "0.82 ("24.73) t:1

convergence, 1993–2011
Constant (value t) "0.036 ("0.56) t:2
(excluding Orellana)
R2(adjusted) 0.97 t:3
Convergence velocity 0.091 t:4

The following formulas were used to determine the beta convergence and its 185
velocity: 186

" #
Δln Y it " ΔlnY t ¼ðαi " α Þ " β ln Y i, t"1 " lnY t‐1 þ ε& it (14.2)

in which (α1 " α) measures the autonomous growth differential on a regional scale 187
and ε*it ¼ (εit " εt) represents the new element of random perturbation. A β < 0 188
coefficient indicates economic convergence, while the R2 coefficient of the regres- 189
sion and the statistical significance of the coefficient (through statistic t) are 190
indicators of the credibility of this measure. 191
The convergence velocity (β), also known as the measure of the speed at which 192
the regions approach their steady-state, is obtained by comparing this equation 193
to the prediction yielded by the neoclassical model via linear approximation around 194
the steady-state(Sala-i-Martin 2004), which is expressed as follows (Table 14.1): 195 AU3

1$ & %
β¼" 1 " e"β T (14.3)
T
The beta convergence uses the two estimates presented above. In the first, the 196
beta convergence (excluding Orellana) indicates that the beta coefficient has a 197
negative slope. Therefore, per capita growth in the long term presents an inverse 198
correlation with the level of real per capita income in the base year (1993), which 199
demonstrates the existence of absolute convergence among Ecuador’s regions. In 200
this sense, it is argued that poor regions tended to grow faster than the wealthy 201
regions in the long run, which suggests a trend towards a reduction in per capita 202
income disparities. 203
The value of statistic t and its probability reveal the statistical significance of the 204
beta coefficient. The result of the assessment is the presence of an absolute 205
convergence in income in the long term, as the analysis of the beta coefficient is 206
negative and statistically significant, and the association with initial income is high. 207
These results corroborate the data obtained from the sigma convergence, which also 208
indicated that income disparities declined in the long term. For the purpose of a 209
reading of such data, the same analyses undertaken with the sigma convergence will 210
be applied, which explain factors that could have produced the absolute 211
convergence. 212
The regions have a convergence velocity of 9.1 % per year which is a high figure. 213
Note that this value is a measure of the speed with which the regions approach their 214
steady state (Table 14.2). 215
In the second estimate (excluding Galápagos and Orellana),the beta convergence 216
indicates a negative slope (negative beta coefficient), with which long term per 217
 M.G. Ramón-Mendieta et al.

t:1 Table 14.2 Ecuadorian beta β (value t) "0.46 ("1.9)

convergence, 1993 – 2011
t:2 Constant (value t) 0.7 (3.26)
(excluding Orellana and
t:3 R2(adjusted) 0.12
Galápagos)
t:4 Convergence velocity 0.032

218 capita growth shows an inverse correlation to the level of real per capita income in
219 the base year (1993). At the same time, it indicates the presence of an absolute
220 convergence of income levels in Ecuador’s regions. With these results, it can be
221 assumed that the wealthy regions posted slower growth than the poor regions, and
222 therefore it can be presumed that there is a shift towards a reduction in per capita
223 income disparities between Ecuador’s regions.
224 The fact that the value of t is greater than the expected value of t +/- 1.96 (95 %
225 of the interval coefficient) also indicates the existence of an absolute convergence.
226 A failure probability that is lower than the permitted value (5 %) proves this, as does
227 the fairly moderate association with initial income. Finally, the resulting evaluation
228 suggests the presence of absolute convergence in long-term income, given that the
229 analysis of the beta coefficient is negative and statistically significant, and the
230 association with initial income is fairly moderate. These results confirm those
231 obtained from the sigma convergence, which show that the income disparities
232 decreased in the long term.
233 The results of this convergence, in reaching trends similar to those observed for
234 the sigma convergence, will assume the same analyses since they provide possible
235 explanations for the absolute convergence.
236 In terms of convergence velocity, the regions grew at a considerable pace
237 (3.2 %). It is important to note that the exclusion of the special cases of the tourist
238 region (Galápagos) and the oil region (Orellana) yields a lower convergence
239 velocity than the one obtained in the previous case (in which only Orellana was
240 excluded), which demonstrates the influence of tourism on Ecuadorians’ income.

241 14.4 Growth and Clusters in Ecuador

242 In previous estimates, the evaluation of the convergence process in Ecuador has
243 shown that this process has slowed and been reversed in the past few years. In view
244 of this, Exploratory Spatial Data Analysis (ESDA)will be used to determine
245 whether the long term convergence process and its recent reversal is associated
246 with the formation of wealthy and delayed regions that present specific steady states
247 (convergence clubs).
248 The decision to exclude Galápagos was made based on the fact that this region is
249 comprised of several islands, islets, and keys with no geographic contiguity with
250 mainland Ecuador (located at a distance of about 1,000 km). Below, we will
251 identify the convergence clubs in Ecuador. In order to do so, we must identify
252 any regions whose behavior (per capita income) has been different than that of their
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

Fig. 14.3 Maps of per capita Ecuadorian GVA, 1993, 2001 and 2011

peers, that is, if there are regions whose income levels are above the others. In order 253
to determine the atypical values, Box Plots were prepared and analyzed for 1993, 254
2001, and 2011. 255
Four conclusions stand out: (1) Azuay, Guayas, and Pichincha have experienced 256
sustained long-term growth at rates higher than those of the other regions; (2) the 257
regions of Cotopaxi and Orellana began to grow at higher rates in 2011 due to the 258
recent emergence of industrial activities in Cotopaxi and oil extraction in Orellana; 259
(3) the regions of Cañar, El Oro, Pastaza, and Tungurahua have entered and left the 260
category of the fastest growing regions, which suggests that they have not been 261
growing steadily; and (4) some regions have never been among the regions with the 262
fastest growing economies (the rest of the regions). 263
In general, there are regions with higher growth rates (Azuay, Guayas, and 264
Pichincha), as well as regions that sporadically post more rapid growth but that 265
have not been able to consolidate their position within the group of the fastest 266
growing regions, which would demonstrate a concentration in national income. 267
Some regions have continued to lag behind the fastest growing economic provinces 268
(the rest of the country). 269
In order to pin point the regions with faster or slower economic growth, clusters 270
of regions that share similar characteristics are plotted on a map. The regions are 271
represented in shades of gray that range from those with higher per capita income to 272
those with lower per capita income. The results are presented below. 273
Figure 14.3 illustrates the behavior pattern indicated in the previous case. The 274
regions of Azuay, Guayas, and Pichincha represent the group of provinces with 275
higher incomes. Generally speaking, the regions of Napo and Sucumbios are 276
characterized by low income levels. The higher income regions have better roads, 277
industries and companies, airports (with the exception of the Azuay airport, the 278
others are international airports), a larger number of schools and better overall 279
infrastructure. 280
The poor regions present serious infrastructure deficiencies and fewer industries 281
and companies. The placements of these two categories are also related to their 282
population size, since there are fewer inhabitants in the poor regions. This confirms 283
 M.G. Ramón-Mendieta et al.

Fig. 14.4 Disparity and 0.20 0.35

spatial dependence in 0.15 0.30
Ecuador 0.10

Standard Devia!on
0.25
0.05
0.20

Moran`s I.
0.00
0.15

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-0.05
0.10
-0.10
-0.15 0.05

-0.20 0.00

Moran`s I. SD Linear (Moran`s I.) Linear (SD)

284 the theory that spatial economic concentration of both economic activity and
285 population is associated with higher income. Finally, it can be said that per capita
286 income tends to concentrate in specific areas and does not occur in isolation, with
287 groups of regions that present higher or lower income over periods of years.
288 A spatial autocorrelation analysis was applied using the Moran’s Index (1950) in
289 order to ascertain whether the categories of regions or convergence clubs display
290 patterns of spatial dependence. According to Anselin (1995), the Moran’s scatter
291 plot is a tool for understanding spatial autocorrelation and provides a more
292 disaggregated view of the nature of spatial dependence. Our study of the Moran’s
293 scatter plot for 1993, 2001, 2007, and 2011 and the estimation of the Moran’s Index
294 follow.
295 According to the results for 1993, 2001, and 2011, the slope of the Moran’s
296 index (MI) is not significant, which implies that there is no correlation between the
297 per capita GVA and the average of the neighboring regions (the spatial lag). Alarger
298 regional disparity can be noted, as each region is geographically distant the others
299 and they tend to not occupy similar spaces.
300 For 2007, the MI reached 0.1774 and is significant and the Moran’s scatter plot
301 slope is positive. This suggests that there is a correlation and larger distance
302 between their slopes.
303 Moreover, throughout the period under study, the regions analyzed tend to
304 cluster in similar spaces (with certain exceptions). The results confirm the
305 conclusions reached in the two previous cases, namely, that there is no spatial
306 dependence of the convergence processes during the 1990s, that spatial dependence
307 emerges at the beginning of this century, that it became more pronounced by the
308 end of the period, and that as of last year (2011) there is once again no spatial
309 dependence.
310 Figure 14.4 shows the evolution of Moran’s Index over time as well as the
311 standard deviation of provincial GVA. It should be noted that the MI is negative
312 from 1993 to 2000 and positive in 2001 and that this trend is maintained until 2010
313 (in 2011 the MI was negative). The varied behavior of the Moran’s Index reflects
314 the absence of a random spatial distribution, if not the existence of possible clusters.
315 Such clusters were comprised, above all, by the provinces of Azuay, Guayas and
316 Pichincha, which house a significant portion of domestic production. This concen-
317 tration leads to economic growth depending on the variables present locally.
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

Fig. 14.5 Kernel density of

Ecuadorian gross value
added (GVA)., 1993, 2001,
and 2011

The data thus suggest that income inequality decreased among the poorest regions 318
beginning 2001, albeit not steadily. Ecuadorian economic growth has been 319
accompanied by a moderate decrease in regional differences, with regional depen- 320
dency continuing to be tied to the agro-export centers of the coast and the slightly 321
industrialized areas of the central and northern highlands. 322
The increase in the Moran’s index between 2001 and 2010 occurred because 323
“when the economy became dollarized in 2000, GDP began to grow again. In 2004, 324
Ecuadorian GDP growth was the highest in the region, reaching 5.4 %.” (Correa 325
and Ochoa 2007) (Fig. 14.5). 326
Kernel density helps us to understand how income distribution has shifted in 327
Ecuador’s provinces. The figure above illustrates the shift in income distribution 328
over time, which suggests that Ecuadorian’s income levels have improved. How- 329
ever, this shift suggests the presence of nodal regions of income concentration 330
(Azuay, Guayas, and Pichincha), which, in turn, indicates the presence of 331
disparities. 332
An easing in income distribution can be observed in 2001, which suggests 333
improved distribution of national income. This is different from the situation 334
observed for other years, in which there is greater asymmetry in income 335
distribution. 336

14.5 Regional Policies in Ecuador 337

One of the recurring themes in Ecuador in terms of regional policy is centralization, 338
a matter that has been widely discussed but poorly addressed. Many of the country’s 339
structural problems can be attributed to centralism given that it has resulted in the 340
concentration of government functions, powers, and resources. 341
In terms of planning, Ecuador tends to be divided into geographical areas (the 342
coast, the mountains, the Amazon, and the islands) rather than regions. As a result, 343
regional policy measures have not been defined and actions have focused instead on 344
social matters and territorial planning. 345
 M.G. Ramón-Mendieta et al.

346 Early planning attempts in Ecuador were developed during the administration of
347 Dr. Velasco Ibarra, which created the National Economic Planning and Coordina-
348 tion Board (JUNAPLA) in 1954. The Board was created to advise the government
349 on the formulation of plans for the country’s economic development and the
350 coordination of its economic policy. JUNAPLA focused on issues related to foreign
351 trade, the terms of trade, and industrialization as well as key pragmatic concerns
352 such as the issuing of specific policies in relation to tariffs, taxes, credit, fiscal
353 affairs, and the creation and training of the labor force. There was a focus on using
354 industrial development to achieve economic growth (Santos 2005). AU4
355 The National Development Plan was established in 1980under President Roldós-
356 Hurtado (1979–1984). It included measures related to territorial integration and
357 regional development as one of five general policy development areas. Policy
358 objectives included the integration of the country’s highways in nationwide system,
359 support for economically disadvantaged areas, industrial decentralization, urban
360 development, and environmental regulation. Issues related to regional policy were
361 considered in mid-1980s in the National Economic and Social Development Plan
362 for 1985–1992. However, regional issues were not viewed as a priority and instead
363 were listed as one of the 13 “major national problems” posed by the country’s
364 development. The implementation of these policies was behind the call for the
365 creation of a regional planning system, although a centralized policy schema
366 remained in effect, which would change its name depending on the government
367 in office (BCE 1995).
368 According to Moncayo (2011), during the following decade, neoliberal ideas
369 would be introduced in the Americas and the last Andean country to adopt such
370 neoliberal structural reform policies would be Ecuador in 1992. Under the admin-
371 istration of President Sixto Durán Ballén, Ecuadorian public policies followed the
372 principles of the Washington Consensus, that is, financial and trade liberalization,
373 reduction of social subsidies, an opening to foreign investment, flexibilization of
374 the labor markets, and the privatization of state-run companies (telecommu-
375 nications, oil, and electricity).
376 Over the years, some planning agencies were created and others were merged,
377 but regional policies have not had a clear and applicable focus. In 2004, the
378 National Secretariat for Planning and Development (SENPLADES) was created
379 as a technical agency responsible for national planning. Its mandate included the
380 creation of regions using the following criteria: two or more provinces that are
381 territorially adjacent, a surface area of at least 20,000 km2, and a number of
382 inhabitants equivalent to 5 % of the national population (up to 20 % of the territory).
383 The criteria focused on interregional balance, ecological complementarity,
384 integrated water basin management, and historical and cultural affinity (Zamora
385 and Carrión 2011)
386 Since 2007, mirroring the socialist trend in Latin American, SENPLADES
387 participation was crucial in the creation of planning zones. President Rafael Correa
388 proposed that the country be divided into seven planning zones in order to allow
389 for the consolidation of regional equality in terms of power. The goal was to keep the
390 potential of the regions and benefits of development from being centered exclusively
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

Map 14.2 Planning zones (Source: SENPLADES 2012)

on the country’s two economic poles, Guayaquil and Quito. Correa further argued 391
that the synergy or strengthening of the factors involved in the territorial components 392
would make the sum of factors that would facilitate the full development of the 393
individual become a reality in Ecuador (SENPLADES 2009). 394
The planning zones proposed by SENPLADES are as follows (Map 14.2): 395
Despite the progress made in recent years, the regional question in Ecuador is 396
not assigned corresponding regional policies. As a result, public policies play a vital 397
role in controlling regional imbalances. Social policies have received a boost from 398
the government, with the corresponding policies and programs responsible for 399
providing and producing services (education, health, housing, and social security), 400
finance functions, procuring services (allocation of social spending and hiring and 401
monitoring private services) and for the regulatory supervision and monitoring of 402
their institutional aspects (regulatory framework for social policies). However, the 403
focus of these functions has varied over time. 404
Currently, increased social spending and income redistribution are leading to an 405
improvement and sophistication of policies aimed at reducing poverty and inequal- 406
ity, establishing equal opportunities and increasing capacity development and 407
quality of life for individuals and thus the regions in which they live. 408
Social policy in Ecuador has focused on two intervention strategies: 409

1. Providing permanent universal social benefits such as education, healthcare, 410

social assistance, sanitation, and housing, among other services (with higher 411
percentages). 412
2. Specific social assistance programs aimed at the poorest sectors of society which 413
use mechanisms involving cash, in kind, and/or service transfers. 414
 M.G. Ramón-Mendieta et al.

415 These more recent programs involve the following intervention mechanisms: the
416 Human Development Bond, Housing Bond, Operation Rescue the Children, Our
417 Children Program, Child Development Program, Food and Nutrition Program,
418 School Food Program, Feed Yourself Ecuador Program, Free Maternity, Popular
419 Insurance Program, HIV/AIDS, Malaria Prevention, Tuberculosis, Water and San-
420 itation Program for Rural Communities and Small Municipalities, Basic Sanitation,
421 etc. These programs were created between the 1980s and 1990s as compensatory
422 mechanisms, but over time they have become permanent components of
423 Ecuadorian social policy.

424 14.6 Final Remarks

425 Ecuador’s economic growth has been accompanied by a moderate decrease in

426 regional income disparities, which had tended to increase over time in the regions
427 but have declined since 2005. Regional dependency continued to be tied to the
428 agro-export centers of the coast and the slightly developed industrial areas of the
429 central and southern highlands.
430 The sigma convergence suggests a reduction in per capita income and therefore,
431 in regional disparities; however, that trend has not been constant. This has led to an
432 exhaustion of growth factors and the beginning of a process of regional divergence.
433 There is evidence of beta convergence given that the poor regions grew faster than
434 the wealthier ones. However, this is not sufficient to reduce regional disparities, so
435 it is assumed that the economic polarization has been maintained and regional
436 clusters strengthened.
437 The convergence velocity is greater when Galápagos and Orellana are excluded.
438 These regions present better economic performance than their peers. However,
439 there is no spill-over effect in the rest of the country.
440 The exploratory analysis of spatial data demonstrates that the per capita income
441 of Azuay, Guayas, and Pichincha has grown steadily and more than that of other
442 regions. The opposite trend has been observed in Napo and Sucumbios. Therefore,
443 the dynamic of economic convergence and divergence could be influenced by
444 spatial factors that occur within the regions. The Moran’s Index for 1993 does
445 not suggest a correlation, but it does in2001. This would indicate that the produc-
446 tivity of a region is auto-correlated with the productivity of neighboring regions.
447 There is no significant spatial reconfiguration since most of the traditional
448 economic clusters have not shifted or contracted. As a result, the emergence of
449 new regions with considerable economic dynamism has been limited.
450 Until now, Ecuadorian public policy has been designed to control the territorial
451 imbalances that have emerged as a result of the absence of regional policies.
14 Growth, Clusters, and Convergence in Ecuador: 1993–2011

References AU5 AU6

Anselin L (1995) Local indicators spatial association – Lisa. Geogr Anal 27:93–113 452
Arrow K (1962) The economic implications of learning by doing. Rev Econ Stud 29:155–173 453
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Central Bank of Ecuador (1995) Polı́tica cambiaria en el Ecuador. Cuaderno de trabajo 457
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Moncayo (2011) Las polı́ticas regionales en América Latina y los paı́ses andinos: un análisis 464
comparativo. Cuadernos del Cendes 23. No. 61. Tercera época. Enero – Abril 2006 465
Moran PAP (1950) Notes on continuous stochastic phenomena. Biometrika 37(½):17–23 466
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reinvención del Estado para el bienestar colectivo 468
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Ecuador 470
National Statistics and Census Institute (1990b) Proyecciones del V Censo de Población y IV de 471
Vivienda. Ecuador 472
National Statistics and Census Institute (2001a) VI Censo de Población y V de Vivienda. Ecuador 473
National Statistics and Census Institute (2001b) Proyecciones del VI Censo de Población y V de 474
Vivienda. Ecuador 475
Quah D (1996) Regional convergence clusters across Europe. European Econ Rev 40 476
(3–5):1951–1958 477
Quah D (1997) Empirics for growth and distribution: stratification, polarization and convergence 478
clubs. J Econ Growth 2(1):27–59 479
Ramón M (2011) Dinámica poblacional en Ecuador. Informe de coyuntura económica 480
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Ecuador 482
Romer P (1986) Increasing returns and long-run growth. J Polit Econ 94:1002–1037 483
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Santos E (2007) Institucional y Economı́a. Caso ecuatoriano 487
Solow R (1956) A contribution to the theory of economic growth. Q J Econ LXX(1):65–94 488
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Zamora G, Carrión A (2011) Planificación del desarrollo y ordenamiento territorial, Colección 490
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 Author Queries
Chapter No.: 14

Query Refs. Details Required Author’s response

AU1 Please check if the inserted citation The quote from Map 14.1 [line 80] it should be inserted,
additionally attached new maps 14.1 and 14.2 with higher resolution
for Map 14.1 and 14.2 are okay.
Appointments for Figures 14.2 [line 167] and 14.5 [line 326]
AU2 Please check if the inserted citation
for Figs. 14.2, 14.5 and Tables 14.1
and 14.2 are okay.
AU3 The citation Salai Martı́n (2004) has
been changed to Sala-i-Martin
(2004). Please check if appropriate.
AU4 Please provide details of Santos
(2005) in the reference list.
AU5 Please cite Baumol (1986), National
Statistics and Census Institute
(1990b), National Statistics and Cen-
sus Institute (2001b), Central Bank of
Ecuador (2001–2007), Sala-i-Martı́n
(2002), Santos (2007), Solow (1956),
Swan (1956), and Zamora and Car-
rión (2011) in text.
AU6 Please provide complete biblio-
graphic information for Zamora and
Carrión (2011); Santos (2007); Ra-
món (2011); National Statistics and
Census Institute (2001b, a, 1990b, a),
National Secretariat for Planning and
Development (2009), Moncayo
(2011), Correa and Ochoa (2007),
Central Bank of Ecuador
(2001–2007, 1999, 1996, 1995,
1993), and Baumol (1986).

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