Towards a post-oil economy: a complexity approach to understanding natural resource dependency and economic diversification in Ecuador

Oil and mineral export-dependency has been a long-standing issue for several countries, especially developing ones. Resource-rich countries not only are highly vulnerable to macroeconomic shocks, due to the volatility of international commodity prices, but also tend to under-perform economically when compared to resource-poor ones. To overcome the problems associated with the overreliance on natural resources, it has been argued that countries must diversify their productive base and significantly reduce their dependency on primary sectors. Notwithstanding the importance of this topic, surprisingly little is known about how this can be achieved.
To improve our understanding about this structural dependency, this thesis argues that one of the fundamental constraints for diversification in oil exporting economies is linked with the ways in which their productive structures are configured. Understanding these productive structures could help explain the limited capacity of such economies to generate new productive activities, based on the productive knowledge they generate and accumulate, and provide insights to guide policy making and investment decisions for diversification pathways.
This thesis proposes an experimental network-based methodology to understand how an oil exporting economy is configured and uses Ecuador as a study case. This methodology enables assessing the importance of different industries in a country, as measured by how connected they are with the rest of the economy and their relative importance for promoting growth. In addition, this thesis tests the impact that the 1972 oil boom had on the productive structure of Ecuador, as a way to assess the importance of the oil industry in terms of its capacity to stimulate other economic sectors. Finally, this thesis examines how the current concentration of different economic activities (and respective production networks) in specific locations influences the emergence of pioneering activities in those places, serving as key components to future productive diversification paths for Ecuador.
In this research, it was observed that the industries that generate more income for Ecuador (i.e., extraction or direct use of natural resources such as agriculture, mining or oil) are the ones that have the lowest centralities. This means that the country relies mostly on industries which are relatively isolated from the rest of the economy and are not big consumers of intermediate inputs, with the lowest capacity to generate knowledge spillovers, thus potentially acting as one of the main constraints for growth in Ecuador. In line with previous findings, it was also observed that there were changes on different industrial centralities after the 1972 oil boom. However,the methodology proposed was not useful to explain if the changes observed were directly attributed to the discovery of crude oil. Finally, this study also shows that the existing productive structure of a country, the location and concentration of productivity and how production networks are linked are good predictors of the emergence of pioneering activities in a given place, which is coherent with the existing literature.
A general conclusion of this thesis is that the productive structure of a country is crucial for its economic development and could limit its diversification potential. In the case of the Ecuadorian economy, it relies mostly on industries with the lowest degree of connectivity, which do not have the capacity to stimulate other sectors effectively. Furthermore, we observed that the productive configuration of an economy could limit the productive knowledge that it can acquire or develop. Its future development paths will depend on this configuration. If oil-exporting economies seek to diversify their productivity, they first need to look at how their economies are configured in-depth. Only then they are in a position to develop strategies towards their aspired development and goals. Diversification processes are heavily path- and place- dependent.

Keywords: economic diversification
resource curse
economic complexity
productive diversification
post-oil economy
natural resource dependency
network analysis
Ecuador
economic geography
petroleum
complexity economics
crude oil
oil exporting economies
Advisor: Clark, G