Ecuador’s economic growth and the external sector: examining Thirlwall’s Law (1960–2024)

This paper examines the empirical relevance of Thirlwall’s Law for Ecuador during 1960–2024, assessing whether the balance-of-payments-constrained growth rate (BPCG) acts as a long-run attractor for real GDP growth. The income elasticity of import demand is estimated using an ARDL model with an error-correction mechanism across three structural regimes: pre-democracy (1960–1978), democracy until dollarization (1979–1999), and post-dollarization period (2000–2024), including the COVID-19 shock. Then, the implied BPCG rate is compared with observed GDP growth. The results indicate a close correspondence between actual growth and the BPCG rate over the full sample, consistent with the weak form of Thirlwall’s Law. While temporary deviations are observed, particularly prior to dollarization, these fluctuations appear to be temporary and associated with external shocks, macroeconomic instability, and institutional transformations. Overall, the results suggest that Ecuador’s long-run growth has been closely linked to the external sector that acts as a dynamic “centre of gravity”, while domestic factors primarily influence short-run dynamics.