Located on the west coast of South America, sharing borders with Colombia and Peru, Ecuador has a population of 13.7 million. It was a part of the Inca Empire until the arrival of the Spanish in the 16th century. Ecuador gained its independence as a part of Gran Colombia in 1822, and as an independent country in 1830. Historically, the economy of the country has relied heavily on agriculture with the export of primary products including bananas, flowers, and shrimp. However, for many years the major export was cacao, used to make cocoa. There was also a substantial export economy in sugarcane, tobacco, and cotton. Some of the latter was turned into clothes in workshops known as obrajes, where many locals, in poor working conditions, would make woolen and cotton clothes. Sugarcane was often used to make pure sugar, and also molasses and rum. Most of this came from “Costa,” the coastal region of the country that developed at the expense of the “Sierra,” the Andean highlands. The Spanish also established a large shipyard at the main port, Guayaquil, and it soon became one of the biggest in Spanish America.
With independence in 1830, much of Ecuador’s population of about 500,000 was working in agriculture as sharecroppers. Labor was cheap and the country’s cash crops, which were grown for export, were able to be produced more cheaply than in most other countries. As a result, Ecuador’s economy was very much linked into the world economy by the middle of the 19th century. This meant that at times of economic slump overseas, the Ecuadorian economy would suffer. To increase the amount of foreign income, in the second part of the 19th century, the production from cacao was tripled—it became the mainstay of the economy and also Ecuador’s principal source of foreign currency—and the total exports of the country increased 1,000 percent. Although Quito remained the capital, Guayaquil came to be the commercial center of the country, and for imports and exports.
During the 1930s and the 1940s, pestilence caused a major diminution of cacao production throughout the country, and the government sought to revitalize the economy by promoting the growing of bananas. This started in 1948, but there was a sudden increase in demand for cacao, and although bananas had started to replace cacao as the major export crop by the mid-1950s, Ecuador remained the sixth largest exporter of cacao in the world in 1958. The banana industry, however, was successful with help from the United Fruit Company, although demand began to fall in the late 1960s, and by 1972 the country had to, once again, restructure itself.
By the 1980s, agriculture and fishing were still the largest employers in the country, and made up nearly half the country’s foreign currency earnings. In 1986, bananas, coffee, and cocoa combined made up only 2.4 percent of the country’s total gross domestic product. By this time Ecuador also started to benefit from the tourist industry, with many people visiting the Galapagos Islands, and there was coastal fishing from Guayaquil, the country’s largest city and a major port. Guayaquil now has a population of over 2 million, compared to just less than 1.5 million for Quito.
The discovery of petroleum in the early 1970s and its exploitation have transformed the country. This coincided with a major increase in the world demand for petroleum, and with the oil crises of 1973–74 and 1979, petroleum rapidly became one of the major sectors of the Ecuadorian economy. This helped finance increasing government expenditure and in May 1992 about 1.1 million hectares were handed back to indigenous communities. To ensure that the economy continued to remain strong, in 1992, Argentina had pegged the local currency, the Sucre, to the U.S. dollar, and Ecuadorian president Jamil Mahuad decided in 2000 to adopt the U.S. dollar as the official currency of his country. Although there were initial political problems, the U.S. dollar was adopted in 2001.
In 2008, Ecuador was decried for attempting to wrongly get billions of dollars from Chevron through legal maneuvers over what some saw as bogus pollution charges against Chevron.
- “Banana Republic Behavior,” Wall Street Journal (August 18, 2008);
- Carla Calero, Arjun Bedi, and Robert Sparrow, Remittances, Liquidity Constraints and Human Capital Investments in Ecuador (Institute of Social Studies, 2008);
- Carlos de la Torre and Steve Striffler, The Ecuador Reader: History, Culture, Politics (Duke University Press, 2008);
- Vicente Fretes Cibils, Marcelo Giugale and Eduardo Somensatto, Revisiting Ecuador’s Economic and Social Agenda in an Evolving Landscape (World Bank, 2008);
- Gerhard Drekonja, “Ecuador: How to Handle a Banana Republic Turned Oil State,” Boletín de Estudios Latinamericano y del Caribe (v.28, 1980);
- The Europa Year Book (Europa Publications, 2008);
- Jörg Faust, Political Fragmentation, Decentralization and Development Cooperation: Ecuador in the Latin American Context. Studies (Deutsches Institut für Entwicklungspolitik [German Development Institute], 2008);
- Carlos Larrea Maldonado, “Transnational Companies and Banana Exports from Ecuador 1948–1972,” North-South (v.7/14, 1982);
- John D. Martz, Politics and Petroleum in Ecuador (Transaction Books, 1987).
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