Adjustment to trade reform in Ecuador

This paper simulates output adjustments and income redistribution in Ecuador with the emerging Free Trade Agreement of the Americas (FTAA). The Specific Factors (SF) model of production is used to develop comparative statistics elasticities of changing prices on factor prices and output as Ecuador adjusts to free trade. Skilled and unskilled labor stands to lose due to falling prices in the services and agricultural sectors. Returns to capital and output fall in sectors exposed to import competition while they increase in sectors expected to enjoy higher export demand. The magnitude of the adjustment is large.Free trade, Income redistribution, Ecuador, Output adjustments, South America, JEL Codes: F10; F13,