Markets, Institutions, and Forestry: The Consequences of Timber Trade Liberalization in Ecuador

Although barriers to international trade were removed during the 1990s, log prices remain inefficiently low in Ecuador. Oligopsonistic conditions, which prevailed in the forestry sector under protectionism, have not been relieved by increased competition. The problem is that new investment is discouraged by weak property rights, corruption, and dated legislation that hinders forest dwellers’ participation in the market economy. Unless and until institutional reform is undertaken to stimulate investment and competition, the prospects for Ecuador’s tropical forests, which are among the most biodiverse in the world, will continue to be bleak.