Poor growth and economic instability have crippled Ecuador's capacity to reduce poverty. This report argues that economic growth depends closely on productivity growth, which in turn depends on the quality of inputs (labor and capital), institutions and policies. This connection between productivity and economic growth has become even more relevant in recent years, after Ecuador decided to adopt the US dollar as the national currency, hence forgoing the option of using exchange rate policy to generate temporary increases in competitiveness and growth. Although the decision to dollarize undoubtedly improved the investment climate, reassured potential investors and potentially increased the capacity of the economy to create employment and reduce poverty, sustained increases in productivity will be required to maintain positive growth rates and declining poverty rates in the future.
