Unintended Consequences of Governmental Legislation in Export Restriction; the Case of Ecuador, 2005-2010

James W. Keeley¹, and  Carlos Monteverde²,

¹International Business and Financial Mathematics, ICP, Universidad Espiritu Santo (UEES), Guayaquil, Ecuador, SA.²Financial Analyst, New York, USA.

³UEES, Km 2.5 via Samborondon Guayas, Samborondon, Ecuador, SA, ABD, UEES ICP (593) 4 2 835 530 Ext 304/133

Corresponding author Email: jkeeley@uees.edu.ec

Accepted 17 October 2012

Abstract

This study analyzes specific events between the years of 2005-2010 that led to the rice export prohibition in Ecuador by the government of President Rafael Correa.  This particular decision to ban an export item was based on a unilateral governmental decision whose main goal was to protect local producers and consumers during a time when global food price had increased and were continuing to increase exponentially. Included is an overview of the issues, causes, effects, recommendations and direction for further research. The methodology includes financial information and statistical data taken directly from members of the rice exporters and rice producers industry in Ecuador, thus offering a quan/qual analysis on governmental intervention and profitability within a small segment of the South American rice industry. The methodology includes a combination of financial analysis, ANOVA analysis and surveys to evaluate the alternative hypothesis presented …current legislation limiting exports has negatively affected the Ecuadorian (farm or non-farm) revenue regarding rice exports between the years 2005-2010. The theoretical approach is based on Smith’s Protectionism Theory, Bouet’s Theory of Export Taxation and Harberger’s Theory of deadweight Loss. The results illustrate the impact of salient influence, primarily governmental decree or legislation, did achieve its primary objective, but left in is wake a series of negative influences or unintended consequences.  Although local price for rice was stabilized, the unintended consequences included loss of employment, loss of revenue for producers, and the loss of Colombia as a consistent trading partner.  In light of the findings, the following are offered as immediate goals for stakeholders in the Ecuadorian rice industry: the recovery of market share in the Colombian market; the search for new potential markets to export; a better approach from the government with exporting firms, improvement of seed’s technology, innovative water systems solutions and crop zonification.

Keywords: Governmental Legislation in Export Restriction