The Role of Structural Reforms in Raising Economic Growth in Central America

Author/Editor: Andrew Swiston ; Luis-Diego Barrot
Publication Date: October 01, 2011
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: Central America experienced moderate growth during the last decade, including in the years leading up to the global financial crisis, but the rate of convergence toward advanced country income levels has still been slow. Moreover, forecasts imply that these trends will continue. What can be done to spur higher growth in Central America? We bring new data to bear on this question-version 7.0 of the Penn World Table and a new IMF database on structural reforms. Our cross-country panel regression of economic growth using System GMM captures the importance to growth of conditional convergence, factor accumulation, and macro policies. In addition, structural efficiency is a significant factor in explaining growth performance. We construct a broad index of efficiency and find that increasing the degree of structural efficiency by one standard deviation raises growth by ½ percent. This implies that Central American countries could significantly increase their long-run growth rates by increasing the flexibility of markets and improving the quality of regulation.
Series: Working Paper No. 11/248
Subject(s): Consumption | Economic growth | Economic models | Fiscal reforms | Human capital

Author's Keyword(s): Economic growth | Central America | Structural Reform | Financial Reform | Human Capital | Factor Accumulation | System GMM
Publication Date: October 01, 2011
ISBN/ISSN: 9781463923273/1018-5941 Format: Paper
Stock No: WPIEA2011248 Pages: 20
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