2017 Index of Economic Freedom

Ecuador

overall score49.3
world rank160
Rule of Law

Property Rights38.7

Government Integrity33.9

Judicial Effectiveness22.3

Government Size

Government Spending46.1

Tax Burden79.1

Fiscal Health56.4

Regulatory Efficiency

Business Freedom55.4

Labor Freedom47.3

Monetary Freedom67.7

Open Markets

Trade Freedom69.7

Investment Freedom35.0

Financial Freedom40.0

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Quick Facts
  • Population:
    • 16.3 million
  • GDP (PPP):
    • $183.4 billion
    • 0.0% growth
    • 4.4% 5-year compound annual growth
    • $11,264 per capita
  • Unemployment:
    • 4.3%
  • Inflation (CPI):
    • 4.0%
  • FDI Inflow:
    • $1.1 billion
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Ecuador’s government continues to expand its reach into economic sectors beyond the petroleum industry. Pervasive corruption undermines the rule of law and weakens property rights. The private sector is struggling to operate and compete with the growing public sector in what has become a restrictive entrepreneurial environment.

Private investment has shrunk as costly regulations and uncertainty have made planning for expansion more difficult. The trade regime has become more restrictive, reducing competition and eroding productivity. Ecuador’s underdeveloped and state-controlled financial sector limits access to credit and adds costs for entrepreneurs. The overall investment climate has become uncertain as the government’s economic policies continue to evolve rapidly in a repressive political environment.

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Background

President Rafael Correa, reelected to an unprecedented third term in 2013, is laying the groundwork to run again in 2017 and appears to hope to remain president indefinitely. The world’s largest banana exporter, Ecuador belongs to the socialist, Venezuela-led Alliance for the Peoples of Our America (ALBA). The judiciary is not independent, and the Inter-American Human Rights Commission has criticized Correa’s government for restricting freedom of the press. Ecuador continues to be a major narco-trafficking transit country. Its dollarized economy depends substantially on its petroleum resources, which have accounted for more than half of export earnings and approximately one-quarter of public-sector revenues in recent years.

Rule of LawView Methodology

Property Rights 38.7 Create a Graph using this measurement

Government Integrity 33.9 Create a Graph using this measurement

Judicial Effectiveness 22.3 Create a Graph using this measurement

Protection of property rights is weak, and violation of intellectual property rights has been decriminalized altogether. A weak judiciary and lack of investigative capacity contribute to an environment of impunity. Some judges accept bribes for favorable decisions and faster resolution of legal cases. Persistent corruption is fueled in part by cronyism and government persecution of media investigative reporters.

Government SizeView Methodology

The top personal income tax rate is 35 percent, and the corporate tax rate is 22 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 19.6 percent of total domestic income. Government spending has amounted to 42.4 percent of total output (GDP) over the past three years, and budget deficits have averaged 5.1 percent of GDP. Public debt is equivalent to 34.5 percent of GDP.

Regulatory EfficiencyView Methodology

The regulatory complexity resulting from inconsistent application of existing commercial laws increases the cost of conducting business. Cumbersome labor regulations inhibit dynamic expansion of employment opportunities and foster the informal labor market. Although dollarization generates a modicum of monetary stability, the government continues to impose price controls and fund subsidies.

Open MarketsView Methodology

Trade is moderately important to Ecuador’s economy; the value of exports and imports taken together equals 45 percent of GDP. The average applied tariff rate is 5.2 percent. Nontariff barriers interfere with trade, and state-owned enterprises distort the economy. The financial sector remains poorly developed. The number of nonperforming loans has been rising, and state interference in banking has expanded.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Chile76.5-1.2
2Colombia69.7-1.1
3Uruguay 69.70.9
4Jamaica 69.52.0
5Peru68.91.5
6Panama 66.31.5
7Saint Vincent and the Grenadines65.2-3.6
8Saint Lucia65-5.0
9Costa Rica 65-2.4
10El Salvador 64.1-1.0
11Dominica63.7-3.3
12Guatemala 631.2
13Dominican Republic62.91.9
14Paraguay 62.40.9
15Trinidad and Tobago61.2-1.7
16The Bahamas61.1-9.8
17Nicaragua 59.20.6
18Honduras 58.81.1
19Belize58.61.2
20Guyana58.53.1
21Barbados54.5-13.8
22Brazil52.9-3.6
23Argentina50.46.6
24Haiti49.6-1.7
25Ecuador49.30.7
26Suriname48-5.8
27Bolivia47.70.3
28Cuba33.94.1
29Venezuela 27-6.7
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