Tariffs and industrial location in Ecuador

Abstract

The theoretical literature has reached no consensus on whether international trade liberalization increases concentration of economic activities within a given country or whether dispersion occurs as the country progressively opens to trade. This paper contributes to this literature by analyzing the experience of Ecuador in the first decade of the 21st century. This country is an interesting case study because it has two economic centers of similar size (Quito, the capital, and Guayaquil) which is different from other Latin American countries. At the same time, the trade liberalization policies followed a similar path of those in other Latin American countries that dismantled the import substitution regime. Our econometric results based on a sample of 20 provinces and 20 industrial sectors in two periods of time, 2000 and 2010, suggest that trade policy did not substantially modify the patterns of location of manufacturing in Ecuador during this period. If anything, it only reinforced, a little, the concentration of economic activities in Quito.