The dog has another issue going on that has to be treated.
First, check for fleas. Even clean dogs sometimes get fleas and if a dog has a bad allergy to flea bites then a SINGLE flea bite can cause horrible itching and eventual hair loss.
Second, harder to diagnose is food allergies. Easiest way is to wean them off their dog food (it takes two to four weeks). Change their food to something non-wheat/non-corn based for a month. If you have a Dollar General Store nearby, you can switch the dog to canned chicken in water for a few weeks. Costs about a dollar a day. If in a month, her skin starts to heal, you know the problem and can buy a allergy dog food. Unless you believe it's a chicken allegy. My one dog has a pork allergy. Then you will need an allergy dog food like duck/potato or rice/turkey. Check for bi-products. NO WHEAT. That is usually an issue.
Third, mold, wool, grass or other odd allergies. I had a dog allergic to grass. Laying in the yard, he'd dig his belly raw. Go figure. If that's the issue, see if the itching is only certain times of the year. If it disappears in the winter, then it may be something in the yard. Chloraphenamine (spelling?) ...the little yellow allergy pill may help during the height of the season.
Fourth, hot spots. Harder to treat but also usually reaction based to something she's exposed too.
Fifth, mental issue. She licks and chews out of boredom or nervousness. Depends on your dog's temperment. Usually an anti-anxiety med and more exercise help.
Sixth, skin mites. Only a vet can diagnose this and only a vet can treat this. You can't see them, they get under the skin and cause irritation.
As for the e-collar, could you imagine itching incessantly and not being able to scratch?
Try the food first, it's the easiest to diagnose (although harder to treat).
Treatments: Allergy pills, steroids (don't work well), change her diet, run an antibotic after clearing up the cause. For dry skin, supplement with Vitamin E capsules.
Try changing her diet, see if after a month that helped.