The Intersection of Economics and Politics in a Small OPEC Country: the Case of Ecuador, 1990 - March 2014

Today, crude oil remains a vital resource all around the world. This non-renewable resource powers countries worldwide. Besides serving as an energy source, crude oil is also the most important component for different world economies, especially in developing countries. Ecuador, a small member of the OPEC oil cartel, presents a case where its economy is oil dependent. A great percentage of the country¿s GDP and government¿s budget comes from oil revenues. Ecuador has always been a primary exporter of raw materials. In the last centuries, the country experienced three important economic booms: cacao, bananas, and, ultimately, crude oil. In this sense, the country has not been able to fully industrialize and begin to export manufactured goods, i.e., Ecuador suffers from the Dutch disease. The latter has deterred Ecuador from achieving broad-based economic development. Given crude oil¿s importance for the Ecuadorian economy, the government has always tried to influence the oil industry in search of profits and benefits. Therefore, this thesis, explores the question: how and to what extent have political interventions affected the oil industry in Ecuador from 1990 until March 2014? In general, this thesis establishes an economic history context during the last twenty-four years, attempting to research how political interventions have shaped Ecuador¿s oil industry and economy. In the analysis, it covers a period where political instability prevailed, until Rafael Correa became president. The thesis examines Ecuador¿s participation in OPEC, trying to find explanations as to why the country voluntarily left the organization in 1992, only to rejoin in 2007 when Correa rose to power. During the ¿Revolución Ciudadana¿ period, the thesis researches reforms to the Law of Hydrocarbons, variations in the relations with other nations, the controversy surrounding the Yasuní-ITT oil block, and the ¿Refinería del Pacífico¿ construction. The thesis is an Industrial Organization detailed case study that analyzes, updates, and evaluates the intersection of economics and politics in Ecuador¿s crude oil industry during the last 24 years. In this sense I have consulted past theses, newspaper articles, books, and other published data about the petroleum industry, both from a global and Ecuadorian perspective. In addition to published sources, I was able to interview sociologists, public figures, history and economics academics, and other experts, accessing unique unpublished data about Ecuador¿s oil industry. I made an effort to collect information that shows the private and public side of the industry, i.e., from government-related and independent sources. I attempted to remain as objective as possible to make conclusions about the appropriate Industrial Organization policy for Ecuador¿s oil industry, addressing the issue from an economic, social, political, and environmental point of view. I found how Ecuador¿s political instability caused public policy to fail, molding the conduct and market structure of the crude oil industry. Throughout history, developed nations have benefited from low oil prices, but things shifted since oil prices began to rise, which is more beneficial for the developing nations that actually possess and produce the raw material. Nevertheless, Ecuador, a victim of the Dutch disease due to its heavy reliance on crude oil as a primary product, has not achieved broad-based development.

The Impact of Foreign Direct Investment on Economic Growth

Over the past four decades, the number of democracies in the world has increased exponentially. This project considers how democracy and FDI affect economic growth as well as whether the impact of FDI depends on the level of democracy in a country. Thus, I explore two major research questions: 1) Whether increased FDI speeds up economic growth, controlling for political regime type, urbanization and other developmental indicators; and 2) Whether an increase in political freedom helps or hinders economic growth, and specifically whether the impact of FDI varies depending on the political regime in the recipient country. To examine these questions, this paper used data from 150 countries over a period between 1980 and 2010 and utilized several models, testing variables such as institutions, agglomerations, urbanization, FDI and type of political regime, among others, for their impact on economic growth. I found that FDI does have a positive impact on economic growth, and that this impact is often magnified when it interacts with other relevant factors. I also found that, after controlling for other variables, FDI inflows do not have a different impact on economic growth in autocracies than they do in democracies. This may be partially explained by autocratic outliers such as China and the OPEC states, which have recently experienced rapid export-led growth. This suggests that factors such as education could have a greater impact on a country¿s economic growth than does its political system.