Evolution of oil exports and its effect on the economy of Ecuador post-COVID

 

Ciencias Técnicas y Aplicadas

Artículo de Investigación  

 

Evolución de las exportaciones de petróleo y su efecto en la economía de Ecuador post-COVID

 

Evolution of oil exports and its effect on the economy of Ecuador post-COVID

 

Evolução das exportações de petróleo e seu efeito na economia do Equador pós-COVID

 

 

 

 

 

 

 

 

 

 

 

 

 

Correspondencia: maria.cazorla@espoch.edu.ec

 

 

         *Recibido: 29 de noviembre del 2022 *Aceptado: 12 de diciembre de 2022 * Publicado: 24 de enero de 2023

 

       I.          Docente Investigador de la Escuela Superior Politécnica de Chimborazo (ESPOCH), Riobamba, Ecuador.

     II.          Docente Investigador de la Escuela Superior Politécnica de Chimborazo (ESPOCH), Riobamba, Ecuador.

   III.          Docente Investigador de la Escuela Superior Politécnica de Chimborazo (ESPOCH), Riobamba, Ecuador.

   IV.          Consultor Independiente, Ecuador.

 

 

Resumen

El brote de COVID-19 ha puesto bajo presión al gobierno ecuatoriano y le ha dificultado más alcanzar sus objetivos de desarrollo. Esta revisión de la literatura se centra en la economía, la pobreza, la salud, la educación y las medidas de confinamiento, al tiempo que analiza la exportación de petróleo en Ecuador y prueba las consecuencias de la epidemia y las medidas de confinamiento. El período de tiempo considerado para ver cómo COVID-19 afecta las estimaciones de exportación de petróleo y sus impactos en la expansión económica de Ecuador. Según el indicador económico, los resultados indican que las políticas fueron ineficaces para preservar las exportaciones ya que hubo un aumento del desempleo, la pobreza y la pobreza extrema. Debido al brote, la economía de Ecuador ahora tiene menos capacidad de expansión debido a los cambios recientes. La tasa de crecimiento proyectada de Ecuador de 2015 a 2019 fue una de las más bajas con un patético 1% antes de la epidemia de Covid-19 el año pasado. La tasa de crecimiento podría haber funcionado mejor debido a los tipos de cambio escandalosamente altos y varias estructuras y leyes. Cuando comenzó inicialmente el brote, el gobierno carecía de los activos y la adaptabilidad financiera necesarios para controlar una tragedia de esta magnitud. Al final, en 2020 se produjo una pérdida orgánica del PIB de un mínimo histórico del 7,8 %, lo que elevó las tasas de desempleo y pobreza. Si el problema de COVID-19 va a tener un impacto sustancial e impedir el avance, se requieren ajustes. La epidemia de COVID-19 provocó una caída en la producción industrial mundial, lo que provocó un menor consumo de petróleo y una caída en el precio del barril. En el pasado, las caídas significativas en los precios del petróleo se han correlacionado frecuentemente con economías deprimidas.

Palabras Claves: Exportación de petróleo; Economía del Ecuador; Covid-19 y su impacto.

 

Abstract

The COVID-19 outbreak has put the Ecuadorian government under strain and made it more difficult for them to achieve its developmental goals. This review of the literature focuses on the economics, poverty, health, education, and lockdown measures while analyzing oil export in Ecuador and proving the consequences of the epidemic and lockdown measures. The time period considered to look at how COVID-19 affects estimates of oil export and its impacts on Ecuador's economic expansion. According to the economic indicator, the results indicate that the policies were ineffective at preserving exports since there was an increase in unemployment, poverty, and extreme poverty. Because of the outbreak, Ecuador's economy is now less able to expand due to recent changes. Ecuador's projected growth rate from 2015 to 2019 was one of the lowest at a pathetic 1% before the Covid-19 epidemic last year. The growth rate could have performed better due to outrageously high exchange rates and various structures and laws. When the outbreak initially began, the government lacked the assets and financial adaptability required to control a tragedy of this magnitude. In the end, an organic GDP loss of a record-low 7.8 percent occurred in 2020, raising unemployment and poverty rates. If the COVID-19 issue is to have a substantial impact and impede advancement, adjustments are required. The COVID-19 epidemic caused a drop in worldwide industrial production, which led to less oil consumption and a drop in the price of a barrel. In the past, significant drops in oil prices have frequently been correlated with depressed economies.

Keywords: Oil export; Economy of Ecuador; Covid-19 and its impact.

 

Resumo

O surto de COVID-19 colocou o governo equatoriano sob pressão e tornou mais difícil para eles atingirem suas metas de desenvolvimento. Esta revisão da literatura se concentra na economia, pobreza, saúde, educação e medidas de bloqueio ao analisar a exportação de petróleo no Equador e provar as consequências da epidemia e das medidas de bloqueio. O período considerado para analisar como o COVID-19 afeta as estimativas de exportação de petróleo e seus impactos na expansão econômica do Equador. De acordo com o indicador econômico, os resultados indicam que as políticas foram ineficazes para preservar as exportações, pois houve aumento do desemprego, da pobreza e da extrema pobreza. Por causa do surto, a economia do Equador agora é menos capaz de se expandir devido às mudanças recentes. A taxa de crescimento projetada para o Equador de 2015 a 2019 foi uma das mais baixas, um patético 1% antes da epidemia de Covid-19 no ano passado. A taxa de crescimento poderia ter tido um desempenho melhor devido a taxas de câmbio escandalosamente altas e várias estruturas e leis. Quando o surto começou, o governo não dispunha dos ativos e da adaptabilidade financeira necessários para controlar uma tragédia dessa magnitude. No final, uma perda orgânica do PIB de 7,8% ocorreu em 2020, aumentando as taxas de desemprego e pobreza. Para que o problema do COVID-19 tenha um impacto substancial e impeça o avanço, são necessários ajustes. A epidemia de COVID-19 provocou uma queda na produção industrial mundial, o que levou a um menor consumo de petróleo e a uma queda no preço do barril. No passado, quedas significativas nos preços do petróleo foram frequentemente correlacionadas com economias deprimidas.

Palavras-chave: Exportação de petróleo; Economia do Equador; Covid-19 e seus impactos.

 

Introduction

Exports are essential for advancing inequalities because they provide individuals and companies access to a broader market for their products. Promoting commercial trade by assisting exporters to benefit all parties is one of the most crucial roles of diplomacy and international relations between countries. Companies that prioritize exporting need help. Businesses will almost certainly pay a higher price due to spending much money researching global markets and altering products to suit local preferences. Export-focused companies are usually more susceptible to a financial crisis. Payment collection methods that are inherently more complex and time-consuming than payments from domestic clients include open accounts, letters of credit, prepayment, and consignment. Through exporting, companies from one nation provide their products and services to customers or consumers in another country.

Along with completed consumer goods like electronics, raw commodities like food, textiles, and energy are frequently transferred across nations. Exporting is the practice of producers and merchants selling their goods to buyers abroad. One approach for firms to increase their potential market, income, and expansion is by exporting. Selling your goods directly to a foreign buyer entails avoiding the need for a distribution intermediary. You can swiftly finish a trade with a client and finalize their order using direct exporting. Political unpredictability, legal and liability issues, cultural differences, and the possibility of financial loss due to theft, fraud, or nonpayment are all possible dangers while exporting commodities.

Promoting economic growth and environmental protection are goals shared by ecological policymakers. The ability of authorities to implement environmental rules, nevertheless, could be constrained. This lack of security may cause businesses to react strategically, resulting in unpredictable results. This study examines how oil and gas companies have responded to various environmental protection laws in a context where specific land parcels have more burdensome environmental regulations than others. Most petroleum, sometimes referred to as crude oil, is made of hydrocarbons, making it a highly energizing liquid. Families worldwide, especially in the U.S., depend heavily on oil for everyday needs. This potent energy source provides us with electricity, heats our houses, helps promote, and is a crucial component of daily goods. All kinds of energy sources are required to support an expanding global population and increase the standard of living. Crude oil will be primarily responsible for meeting this need for supplies. With a focus on an oil exporter that is not a member of OPEC and its oil income, which represent a sizable portion of the country's overall export and budget revenues, using an autoregressive vector technique to investigate the relationship between the primary macroeconomic indicators of a country that exports oil and global oil prices. As I examine the fiscal and export aspects of the country's oil price transition processes, let us include the monetary policy component. The results show that oil price changes significantly impact the actual gross domestic product, consumer price index inflation rate, interest rate, and currency rate of the oil exporting country.

Rising demand and supply disruption concerns are likely to blame for the increase in oil prices. Oil consumption has increased faster than production advances and oversupply reductions combined. One crucial aspect is the rapid rise of developing nations, particularly China and India. Because of these nations' industrialization and development, there is now a greater need for oil globally. Concerns about supply disruptions have grown due to recent upheaval in oil-producing countries, including Nigeria, Libya, Iraq, and Iranians. As a consumer, you may already be aware of the microeconomic effects of increased oil prices. Most of us are inclined to think about the expense of gasoline when we observe rising oil prices since most households depend on buying fuel. Household expenditure on energy is predicted to increase as gas prices rise, leaving less money for other goods and services. Businesses whose principal input is gasoline or whose products need to be moved from one area to another must consider similar factors (such as the airline industry). Increased oil prices frequently cause businesses to incur more significant production expenditures, much like they do for domestic companies.

Oil price increases are typically associated with depressed economic growth and more significant inflation. In terms of inflation, the cost of goods made from materials produced from petroleum is directly associated with oil prices. As was already said, oil prices indirectly affect transportation, production, and warming costs. An increase in these costs can affect the merits of a range of goods and services since companies might pass on production costs to customers. How much more expensive a good or service will be to buy as oil prices rise depends on how much oil is utilized in manufacturing that good or service. Oil price hikes can also limit the economy's growth by influencing the demand and supply of items other than oil. In economic terms, a rise in oil prices can increase the supply and demand curves for products and services that use oil as an input.

Economists have put up various ideas to explain why there is a waning association between oil prices and inflation. Gregory (2007) lists increased energy efficiency as one of the causes. There has been a steady decline in the energy used per dollar of GDP. Therefore, oil costs are not as high as they formerly were. In addition, various hypotheses are presented by Blanchard & Gali (2007). They conclude that improvements in monetary policy, more labor force flexibility, and a dash of good fortune have all helped to lessen the economy's susceptibility to oil shocks (i.e., the absence of concurrent unpleasant surprises).

Additionally, how the monetary authorities responded to the economic shocks caused by higher oil prices may have changed how those shocks influenced inflation and economic growth. Some contend that while deciding how to respond to the oil shocks of the 1970s, policymakers tended to be more focused on output than inflation and should have considered the inflationary impact of the oil shocks adequately. Because they believed that the oil shocks would lead to significantly greater future inflation, families and companies in the United States most likely adjusted their expectations correctly after realizing that the Fed would not pay much attention to inflation.

 

1.1 Salient Features of Oil in Ecuador

Ecuador needs consistent long-term economic growth of 7% to increase its living standards and achieve full economic development. However, it has been highlighted that Ecuador's GDP has hardly ever increased by more than 5% since gaining independence. Ecuador's economic development has slowed since 2008 and is only expected to reach 2.6% this year. Real growth is only likely to be about 3%, less than the predicted increase of 4.2 percent, even thou predictions call for growth in the U.S. of more than 8 percent in 2012. Weak macroeconomic foundations are one of the leading causes of the poor economic growth rate.

Ecuador ranked 125th in terms of economic freedom with a score of 54.3 on the 2022 Index. Out of the 32 nations in the Americas, Ecuador is placed 25th, and its total score is lower than both the average for the continent and the standard for the whole world.

According to total GDP, Ecuador is the 69th largest economy in the world and the eighth largest in Latin America. Oil, bananas, shrimp, gold, other significant agricultural goods, and money transfers from Ecuadorians working abroad are the pillars of the country's economy. Remittances made for 2.7% of the nation's GDP in 2017. 42% of Ecuador's GDP was produced by all commercial activities in 2017. The country depends a lot on its petroleum supplies. In 2017, oil accounted for around one-third of public sector income and 32% of export earnings. Ecuador was a lesser member of OPEC during that period, exporting 540,000 barrels of oil daily on average in 2017(Lyall, 2018).

 

2 Literature Review

2.1 Evolution of Oil Export and its impact on the economy

The impact of fiscal policy decisions on economic performance is tremendous because of the importance of the oil industry to these countries' economies and the fact that oil earnings frequently support the governments of these countries. Long- and short-term fiscal policy challenges for oil-dependent countries include macroeconomic stabilization, budgetary planning, intergenerational fairness, and fiscal sustainability. The creation of oil stabilization and savings accounts, as well as conservative budgeting assumptions on the price of oil, are examples of institutional solutions to the specific financial issues that oil-exporting countries face. Due to years of high oil prices, most countries exporting oil have boosted their budgetary reserves. The ability of monetary policy to effectively combat inflation has been constrained by the present exchange rate regimes, even as fiscal expansion has raised inflationary pressure. Even if fiscal policy is the primary tool for macroeconomic stabilization in this situation, it must strike a balance between conflicting aims and concerns. Budgetary restraint would have been necessary due to cyclical causes, but rising public expenditure incentives exist while oil prices are high. These pressures are typically brought on by things that impact distribution, development-related spending demands (such as those for societal and physical infrastructure), and pressures from abroad, including those brought on, for instance, by global imbalances. Can oil exporters maintain the expenditure levels set in prior years? This problem has emerged since mid-2008 due to the steep decline in oil prices (Sturm et al., 2009).

According to Mehrara, (2007), this study examines the causal relationship between per capita energy consumption and per capita GDP in a panel of 11 carefully selected oil exporting countries using panel unit-root tests and panel counteraction analysis. The results show a sizable unidirectional causal link between economic development and energy usage for oil-exporting countries.

Figure 1. Map of countries by GDP level

Source: World Banc, Available in https://datos.bancomundial.org/indicador/EG.GDP.PUSE.KO.PP

 

 

Figure 2. WTI oil prices

Source: Inter-American Development Bank.  Available in: https://blogs.iadb.org/energia/es/la-crisis-de-los-precios-de-petroleo-ante-el-covid-19-recomendaciones-de-politica-para-el-sector-energetico/

 

For those who want to undertake it, the results of macroeconomic forecasting have substantial policy implications. Government regulations maintain domestic prices below those of the free market in the preponderance of the major oil-exporting countries, which results in high levels of national energy use. The results demonstrate that the energy efficiency brought about by altering the laws governing oil pricing had no adverse consequences on this group of countries economic performance. The study on the relationship between energy usage and economic growth has produced two competing views. One idea holds that energy use restricts economic growth. The alternative holds that energy does not affect how quickly something expands. The "neutrality hypothesis" states that since energy costs make up a tiny portion of GDP, they should not significantly impact how quickly output increases. Furthermore, it has been claimed that the country's economic structure and level of development will determine any possible effects of energy use on growth.

This study investigates how the severe fluctuations in oil prices and the resulting shifts in tax receipts affect the expansion of the world economy in oil-exporting nations. According to the study, the change in oil prices does not appear to slow down long-term growth. Additionally, even after accounting for fiscal actions, GDP is only marginally boosted over the long run by increased oil prices. In that regard, the resource price is not, by definition, a "curse." Fiscal policy is the primary mechanism through which oil price fluctuations impact the economy, and this result accounts for the variations in growth rates across commodity exporters. Oil exporting nations have seen extreme price fluctuations since the 1970s, which is terrible for the economy. Long-term growth rates can be slower due to the rising production instability that frequently follows such fluctuations. Oil price shocks are fundamentally a fiscal phenomenon because of their direct effects on state finances, typically resulting in pro-cyclical government spending, pro-cyclical foreign and domestic borrowing, and a highly variable income stream. This indicates how fiscal policy significantly impacts how oil shocks affect the economy (El Anshasy, 2009).

Figure 3. Historical oil prices

Source: Word Economic Forum, 155 years of oil prices - in one chart, https://www.weforum.org/agenda/2016/12/155-years-of-oil-prices-in-one-chart/

 

Moshiri & Banihashem, (2012) explore that the macroeconomic performance of both oil-exporting and -importing countries is impacted by shocks to the price of oil. Recent research on the relationship between oil and the macroeconomics of countries that import oil shows that oil price shocks have asymmetric effects on their economic development, with higher oil prices having a negative impact that is bigger than lower prices, which can have a positive influence. Oil-exporting countries experience the effects of oil price shocks on economic performance and their modes of transmission differently than oil-importing countries. In this paper, we examine the connection between macroeconomics and oil in the context of developing countries that export oil. Oil price shocks and economic growth are the two most essential factors in the model, along with a few additional factors like investment, exchange rate, and inflation rate. We discover that falling oil prices would result in significant income losses and economic stagnation in emerging nations that export oil. However, increased oil prices do not necessarily mean longer-term economic expansion or better income.

This research examines the relationship between oil revenues and economic growth in African nations that export oil. It also makes an effort to offer a theoretical and empirical study of how the resource curse of natural resources affects the economic development of these countries. For 13 non-oil exporting nations and 48 oil exporting nations, including Africans, from 1971 to 2001, regression using panel data analysis is used. In oil exporting nations, including those in Africa, there is evidence of the resource curse; exchange rates and the Dutch disease syndrome do not explain the resource curse in these nations, including Africa; the absence of democracy in oil exporting nations impedes economic growth; and the institutions in these nations are in such a deplorable state that they encourage the appropriation of public resources. The fundamental conclusion of this study is that, in contrast to other oil-exporting countries, oil rents in Africa have not contributed to the growth of governments that produce oil (Akanni, 2007).

The research assesses the effects of oil income on economic growth using a strategy for developing financial markets. They evaluate the proportional contribution of public and private oil income investment using the Group VAR approach over a sample of 82 oil-producing nations from 1990 to 2015. To predict how oil revenues might impact economic growth in reaction to changes in the financial markets, a two-step GMM technique is also utilized. The analysis shows that while government investments with oil income contribute to economic growth as the banking sector expands, they have little bearing on the stock market's trajectory outside the turnover ratio. The findings also demonstrate that private oil income investment has a detrimental impact on economic growth, subject to the expansion of the banking system. They see no effect on the overall growth of the stock market. The policy recommendation is for oil-producing countries to pay closer attention to the share of oil rent that goes to their governments and the development of their banking sectors because doing so can have a positive knock-on effect on the growth of their economies through government investment in oil revenue (Mohammed et al., 2020).

This study uses co-integration analysis with the distributed lag autoregressive approach to empirically evaluate the distinct effects of the expansion of the Nigerian banking and stock markets on economic growth between 1980 and 2015. After considering the possible effects of the cost of oil and exchange rates on economic activity in Nigeria, this study found that the growth of the nation's stock market and banking sector had no enhancing value on the country's economy. The findings indicate that the oil industry dominates Nigeria's economy and that the country's financial system is ineffective in generating and allocating resources to promote economic growth (Nwani & Bassey Orie, 2016).

The banking sectors of oil-exporting nations contribute less and less to economic growth as their reliance on oil increases. According to Barajas et al. (2013), however, they also pointed out that oil-exporting nations may see more substantial growth impacts from stock market expansion than oil-importing nations. Kurronen (2015) analyzed a sample of 120 countries from 1996 to 2010 to show that resource-dependent economies often have a smaller banking sector but also found evidence that market-based financing is more common in these economies. Naceur, (2007) examined the effects of the stock market and banking sector development on economic growth in the Middle East and North Africa (MENA) region over the period of 1979-2003 in order to understand the influence of the oil sector on economic sectors in a region controlled by major oil-exporting nations, including some OPEC member countries: Saudi Arabia, Kuwait, and Arab countries. In contrast to liquidity, domestic lending to the private sector—which fosters regional economic growth—is a more reliable indicator of the state of the banking system.

The two new components of the oil growth relationship that are pertinent when focused on oil-producing nations are studied in this paper utilizing original methodologies. To correlate per income per capita on the ratio of oil production to fundamental electricity efficiency and oil rents per person, they utilize panel regressions. In a multidimensional oil-growth linkage paradigm, connection analysis is investigated together with control factors. For a panel of oil-producing nations over a long period of time (1971–2013), the per capita oil consumption–economic growth nexus is taken into account while influencing goods and services exported and the percentage of oil and gas production to energy consumption, oil rents, and multinational prices for crude oil. This panel's cross-sectional dependency phenomena show that these nations have shared geographic patterns or unobserved causes. Examined and addressed are the error correction model memory correlations and the suitability of the panel data estimators. It is demonstrated that a dynamic Driscoll-Kraay estimator with fixed effects can handle the panel's heteroscedasticity, contemporary correlations, first-order autocorrelation, and cross-sectional dependency. Oil use does, but only momentarily, drive economic growth. Growth has benefited from the oil output to fundamental electricity consumption ratio throughout both short and long periods (Fuinhas et al., 2015).

This study uses the recently created Panel Structural Vector Autoregressive estimating technique to experimentally examine the economic performances within the financial framework of Africa's net oil-producing states and the transmission channels of oil price shocks. The study investigated several variables, including inflation, money supply, interest rates, currency exchange, the gross domestic product, unemployment, and oil price shocks. The groups for these variables were endogenous and exogenous. Between 1979 and 2015, the inquiry was conducted. The data analysis revealed that throughout this time, there were significant responses to shocks in oil prices. The results of the study showed that oil price variations significantly impact how well the oil-exporting countries of Africa are doing economically and that these changes are passed on through the banking system. Consequently, the study suggests strict monetary control mechanisms should be implemented if positive oil shocks are noticed (Moshiri, 2015).

This study examines how oil rents affect economic growth in oil-exporting African countries. It also makes an effort to provide a theoretical and empirical analysis of how the resource curse of natural resources impacts these countries' economic growth. (Olomola, 2007). 

This study aims to identify the factors that influence oil-producing countries' economies. To do this, panel data studies were conducted using time series data from 29 countries. The first study, which examined the 20 countries with R&D data, discovered that the amount of crude oil exported, the exporting price rating, the economic accessibility indicator, government expenditure on education, foreign investment, and Capital investments positively affected economic development. The second study's findings, which concentrated on the nine countries without R&D data, show that foreign debt, the export value index, the perception of corruption index, and the economic freedom index affect economic progress. One of the main problems in economics is the topic of economic growth in wealthy and impoverished nations. There are numerous disagreements in the literature on what causes economic growth. However, a widely recognized theory holds that the disparities in growth rates among nations are primarily caused by factors such as labor force, capital, natural resources, and technological development (Bozkurt et al., 2015).

Traditional concepts of international trade place limitations on examining the worldwide trade in crude oil as a system with many nations and intricate relationships. A technique offered by complex network theory can be used to fully or partially study the global trade system. They took it a step further, though, and created a particular model based on unidirectional interactions. Direct links are the foundation of complex system models for fundamental investigation. In order to examine the links between countries with comparable trading partners, this article built a network model of the worldwide trade in crude oil. Our nation's two primary network types are networks based on importing and exporting. They examined the historical changes in their division, hierarchy, and size. They found that the global crude oil market is evolving into a reliable, organized, and linked system and that various events have distinct effects on exporting and importing countries. They provided many policy implications (An et al., 2014).

According to Adenugba & Dipo, (2013), Commodities like oil have unique qualities. Only a few notable traits are its dependability, price volatility, boom-bust cycles, very high capital intensity and technological complexity, enclave nature, and remarkable generation of profits that benefit both the state and private participants. Additionally, it supports global industrialization. These elements work together to create "the paradox of abundance," often known as the "resource curse." The fact that the resource is essentially a dark, viscous material does not make it undesirable or the resource's fault.

One of the most blatant social effects of the resource curse is that countries that export oil have proportionally high rates of poverty, limited access to medical care, high rates of neonatal death, and low educational success compared to their profits. These results fall short of what countries that export oil had hoped for. Even though poverty and the majority of primary resource dependence are linked, not all commodities are equally responsible. For instance, countries relying extensively on oil typically have shorter life expectancies, influencing the malnutrition rate. In contrast, nations relying heavily on agricultural goods typically have lower poverty rates. Mineral dependence is usually linked to high levels of poverty (Polbin, 2021)

 

2.2 Economic dependence on oil exports

Kitous et al., (2016) explain oil's importance. The worth of oil for countries that export oil is discussed in the article, along with any potential effects the current low oil prices may have on these countries' economies and political stability. The beginning section of the article discusses the main reasons behind the current low oil prices. The vulnerability of the major oil exporting nations to changes in the price of oil is then demonstrated using descriptive statistics that demonstrate how GDP and government income are strongly correlated with the price of oil. Due to their economies' and governments' high vulnerability, poor per-capita reserves, and several Sub-Saharan and North African countries often demonstrate excessive risk. Second, the macroeconomic effects of a 60% reduction in oil prices are assessed using a stylized depiction of the movements of the oil sector during the previous two years. Given how tightly oil exports and the price of oil are interrelated, the results show that a fall in oil prices of this size affects oil-exporting countries. For instance, a 60% decline in oil prices might cause the GDP of Sub-Saharan Africa to fall by 8.5%. In the last section, migration patterns in the study's nations are addressed as a proxy for what may happen if those countries suffered instability due to chronically low oil prices.

The study examines how Nigeria's economic growth has been impacted by international commerce between 1979 and 2016. According to the theory, all types of imports—including oil imports, non-oil imports, non-oil exports, and non-oil imports—can be exchanged in international commerce. The primary source for the secondary data used for analysis. The impacts of international trade on the expansion of the Nigerian economy were evaluated using multiple regression estimation methods. Nigeria's economic growth has been demonstrated to be significantly accelerated by international commerce. Instead of depending too much on oil exports, the government should diversify and broaden its export base to raise revenue, claims the research (Egoro & Obah, 2017).

Mohsen, (2015). State that the economic impacts of oil and non-oil exports on Syria between 1975 and 2010 were examined. Several statistical techniques were used in this work, including the Cointegration test, the multiple regression test, the unit root ADF test, and variance division (V.D.) analysis. The Cointegration test demonstrates a solid and positive association between GDP and exports of both oil and non-oil commodities. The Granger causality test shows the short-run causal links between GDP, oil exports, and non-oil exports. Furthermore, there are long-term causal relationships linking GDP to both non-oil exports and oil exports to GDP. We suggest growing non-oil exports and diversifying them because the study's findings show that oil exports significantly impact the GDP.

 

2.3 International Trade and its impact on oil pricing

International trade organizes socioeconomic outcomes and chances for underdeveloped nations; it is interested in the interactions between states in both an economic and financial sense. Every country has progressed with the beneficial tool of trade. However, the significance of international trade to economic development dramatically depends on the conditions it functions in and the goals it pursues. International trade is important because it demonstrates that only some countries can satisfy all of the requirements of their citizens in terms of products and services, primarily because of resource variances and constraints.

The relationship between trade openness and economic development for more than 100 industrial and developing countries using panel data gathered from 1971 to 1998. The results show that trade restrictions, especially in developing countries, had a favorable relationship with economic growth and that theoretical economic growth predictions still needed to be realized in practice. The findings also show no link between trade openness and economic development (Yanikkaya, 2003).

Akanni (2007) looked at the relationship between exports and Indonesian economic growth using a vector autoregressive (VAR) model. The estimates show how crucial exports and economic development are to Indonesia's economy. As a result, it was demonstrated that the link between exports and economic growth has a two-way causal structure, with export driving growth in the long run and growth driving export in the short term. The researcher explored how the proceeds from oil exports impacted economic growth in Iran using the Cobb-Douglas production function. The research claims that Iran's economy is rapidly developing technologically and readjusting to shocks. By building up natural capital, oil exports significantly raise real income (Akanni, 2007).

The goal of this study by Boye, (2001) is to refute the generally held assumption that Ecuador's economy was unaffected by changes in the global oil market in the middle of the 1960s. This is done in the first segment using univariate statistical techniques and in the second and third segments using an econometric structural break test and impulse response analysis. The study's findings counter common sense and popular wisdom because they demand a multiclausal explanation for Ecuador's economic instability before even attempting to disprove the idea that the global oil market is the primary economic force. Second, they provide little evidence that changes in the oil industry will invariably affect changes in the real estate and commercial sectors.

 

2.4 Economic Condition of Ecuador

The intersections of "environmental flows," which include both flow of material (the production, transportation, and exporting of oils) and non-material flows (social and environmental campaigns), are examined along an oil supply chain using the research of Spaargaren and Mol. Four Ecuadorian towns are researched to show how a community's social and physical characteristics affect its reaction to installing an oil refinery and creating advocacy networks. These examples support the argument that local grassroots and professional organizations are least connected to international activities in areas that are most integrated into the petroleum supply chain. However, environmental organizations forge more significant international links in places where locals are least aware of the harmful impacts of living close to oil refineries on the environment and human health. Based on these findings, the study recommends integrating community monitoring and conversation as essential linkages in the flow of oil (Widener, 2009).

According to Larrea Maldonado, (2013), Ecuador, one of the most biodiverse nations on earth, has been exporting oil since 1970. Although oil was the economy's foundation, diversification is now required since the nation's ability to utilize its resources is deteriorating. Poor economic performance, negligible diversification, structural unemployment, insufficient institutional development, and detrimental environmental repercussions negatively influence extractive-based economies in emerging nations. However, America provides a variety of experiences, with challenging issues in Bolivia, Colombia, and Ecuador and largely positive outcomes in Peru. The paper's primary goals are to examine Ecuador's long-term performance and quickly assess the possibility that extractivism will be defeated.

With limited economic diversification and a per capita income growth rate lower than that of the pre-oil era (1.38% yearly), Ecuador's economy has struggled throughout the oil extraction phase. In the course of four decades, manufacturing's share of GDP stayed unchanged, but just two new primary products—shrimps and flowers—were considerably added to the export basket (Larrea, 2013)

In addition to a favorable economic climate, Ecuador's remarkable oil profits have strengthened its financial standing. Several legal modifications have created or altered funds or account for earmarking, conserving, or utilizing oil-related profits. The fiscal policies, stabilization funds, and choices in Ecuador relating to the oil industry are covered in this article. It examines current schemes, discusses fiscal trends and underlying weaknesses, and provides trends and prospects for the finances and fiscal accounts associated with oil. It evaluates the fiscal stabilization framework's shortcomings and recommends increasing the effectiveness of utilizing extraordinary fiscal revenues. It demands enforceable regulations for fiscal prudence, more accountability for oil income and the budgeting process, market mechanisms to protect against the volatility of oil prices, and improved planning and prioritizing of public investment (Cueva, 2008).

3 Methodologies

In this section, secondary data has been obtained through the investigation of publications and public policy to analyze the information gained on assessing the impact of oil exporting on the economy of Ecuador before and after COVID-19 (world bank and IMF).

 

4. Finding and discussion

Evolution of oil exports and its effect on the economy of Ecuador Pre-COVID

Ecuador's economy has suffered from the pandemic, and its development capacity has recently decreased. Ecuador's projected growth rate from 2015 through 2019 was one of the weakest at a meager 1% prior to the Covid-19 epidemic last year. The poor performance of the growth rate is due to exorbitant exchange rates and a multitude of structural barriers. When the pandemic began, the government lacked the resources and financial flexibility to handle a catastrophe of this magnitude. The eventual result was a record-low natural GDP decline of 7.8 percent in 2020, raising poverty and unemployment rates.

The output potential might be substantially affected without considerable structural adjustments, which would have an effect on employment and capital investment. Prior pandemic episodes often resulted in losses of about 7%, but in the worst scenarios, the long-term loss of per capita production might reach 10%. (IMF, 2021). According to this analysis, Ecuador may permanently lose around 6 1/2 percent of its productivity compared to pre-pandemic patterns, limiting any potential long-term expansion. However, making structural changes can increase potential growth by as much as 4%

 

Evolution of oil exports and its effect on the economy of Ecuador Post-COVID

The epidemic caused a remarkable 7.8 percent decline in actual GDP. Ecuador was unprepared for the COVID-19 disaster because there needed to be financial safety nets and better digital infrastructure to support the economy during the shutdown. Economic activity fell 12.8% (y-o-y) in 2020: as a result of mobility restrictions put in place to impede the virus's spread. High-contact industry output decreased, and the strange pipeline disaster decreased petroleum production. A subsequent, sluggish recovery, especially in 2020, contributed to a 7.8% worldwide decline in that year.

Companies with a substantial client emphasis were severely damaged. Before the pandemic, the high-contact sectors—which accounted for over 43% of gross value added—fell by almost 12.1% in 2020, mainly owing to significant decreases in the provision of transportation, lodging, and food services. By the end of 2020, most high-contact sectors had regained around 10% of their 2019 output. The crisis increased unemployment in the economy due to job losses in high-contact industries. When the economy began to recover in the following years, unemployment remained high, and job quality was poor.

Without changes, the COVID-19 problem might create a lasting scar and significantly restrict future progress. Chronic unemployment and stranded capital may occur from a lengthy period of unemployment in pandemic-affected industries and the irreversible loss of some jobs, businesses, or activities. Additionally, a growing tendency in the services sector toward remote employment might leave physical capital stranded, which could impact investment activity. Compared to pre-pandemic trends, earlier pandemics have caused an average production loss of more than 7%, with capital and TFP losses of about 4% and 2%, respectively (IMF, 2021).

If the recommended changes are made, growth might be far higher than it is presently. Long-term growth can reach 4% if most of these adjustments are implemented successfully. This potential growth forecast is 1.5 percentage points greater than the pre-Covid figure and is consistent with prior reform experiences in other nations. TFP and labor accumulation will be much bigger than pre-Covid potential growth, even if the contribution of physical and human capital will be equal to what was seen between 2015 and 2019. The concept of increased labor and TFP growth stems from changes in the labor market, which increase labor productivity and enable businesses to recruit more people. Physical capital will be bigger than it was during prior periods of lower oil prices, even if it will be similar to the period from 2015 to 2019 due to structural changes making it feasible for more private investment to replace the hole left by state spending during those times. If none of these steps are implemented, there is a risk of sliding into subpar growth rates in the context of expected decreasing oil prices and pandemic scarring.

 

5. Conclusion

 The epidemic has weakened Ecuador's economy, and recent changes have made it less able to grow. Before the Covid-19 pandemic last year, Ecuador's predicted pace of growth from 2015 to 2019 was one of the lowest at a meager 1%. Outrageously high exchange rates and a multitude of structures and control are to blame for the growth rate's terrible performance. The government lacked the resources and financial flexibility necessary to manage a tragedy of this scale when the epidemic started. The end effect was a natural GDP fall in 2020 of a record-low 7.8 percent, which increased the unemployment and poverty rates. Changes are necessary for the COVID-19 problem to have a long-term effect and seriously inhibit progress. Even if specific jobs, businesses, and activities may be permanently destroyed, resulting in permanent unemployment and stranded capital, a protracted period of unemployment in sectors badly affected by the pandemic may reduce associated human capital. Physical capital may get stranded in the services sector due to a growing trend toward remote work, impacting investment activity. The average output loss during prior pandemics was about 7% compared to pre-pandemic norms. (IMF, 2021). Most of this loss comes from losses in capital and TFP, which amount to around 4% and 2%, respectively.

 

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