As with many Latin American countries, Ecuador has failed to progress after reaching middle-income status decades ago. Low productivity growth and a failure to move up the “value chain” are typical features of the ‘middle-income-trap’. As with other countries with natural resources, Ecuador’s growth-strategy relies on extracting and exporting raw materials (mainly petroleum but also bananas and coffee) rather than on diversifying production. GDP-growth depends on high prices for primary commodities, leaving the economy vulnerable to price-volatility. The norm of low-skilled and low-value added activities limits job creation and overall labour-productivity.
Escaping the middle-income trap requires structural change. Resources and labour must be reallocated in ways that diversify the productive matrix and upgrade production. Plummeting petroleum-demand in recent years, falling commodity-prices, as well as Ecuador’s sub-soil reserves being inherently finite increase the pressure to diversify the economy. The government’s current industrial policy, however, continues to focus on extractive practices, expanding oil-extraction and investing in large-scale mining. This view does not contribute to development and conflicts with the state’s constitutional commitment to ‘Buen Vivir’, or striving for social well-being while preserving nature and harmony among citizens who are treated equally. Such conceptualizations, originating in indigenous communities, create a demand for escaping the middle-income trap without causing substantial environmental damage.
Sustainable tourism has emerged as an alternative to extractive activities. Eco-tourism can contribute to Ecuador’s economic diversification while respecting its ‘Buen Vivir’ goals. Ecuador is home to 17 different ecosystems and the most diverse biological hotspot of the western hemisphere.
The eco-tourism experience depends on the degree of environmental protection, as future revenue depends on avoiding natural depletion. One challenge is the subjective understanding of ‘green’ tourism, which leads to self-regulated notions of environmental stewardship and raises questions on “greenwashed” experiences.
Three objectives must be balanced to minimize tourism’s potential costs to sustainable welfare: nature conservation, local participation, and economic feasibility. Past experiences in Latin America have shown the importance of using ecotourism revenues to maintain the natural resource base and the importance of host-community empowerment. Local definition and management of eco-tourism allows communities to turn their natural and cultural heritage into an economic asset while also ensuring its protection. Costa Rica‘s experience is helpful: the country advanced to one of the leading eco-tourism destinations worldwide on its way out of the middle-income trap, coming from an export-profile similar to Ecuador’s. Past eco-tourism stories also highlight how the effective advancement of sustainable well-being means balancing among (sometimes competing) economic, environmental and social interests.
Bottom Line: After being stuck in the middle-income-trap for over 60 years, it is time for Ecuador to move past its dependency on resource-extraction, to focus on sustainable development under ‘Buen Vivir.’
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