Occasional Paper 257:
Economic Growth and Integration in Central America

June 2007

Use the free Adobe Acrobat Reader to view chapter 1 (160KB pdf file).

 Contents   
Foreword
Preface
I. Overview
  Dominique Desruelle and Alfred Schipke
  Recent Developments
  Key Policy Issues
  Integration and Policy Coordination
  Moving Forward
  References
II. Growth Performance
  José Brambila Macías, Guy Meredith, and Ivanna Vladkova Hollar
  Stylized Facts
  Growth Accounting
  Bottlenecks to Productivity Growth
  Empirical Analysis
  Conclusions
  Appendix 2.1. Countries Included in the Sample
  Appendix 2.2. Fit of the Regression Model for the Central American Countries
  References
III . Pension Reform
  Kevin Fletcher and Alfred Schipke
  Basic Structures of Public Pension Systems
  Comparison of Key Parameters
  Special Regimes
  Recent Reform Developments
  Pension Reform and Development of Local Capital Markets
  Reform Options
  Conclusions
  Appendix 3.1. Country-by-Country Descriptions of Recent Reforms
  References
IV. Assessing Sovereign Debt Structures
  André Faria and Guillermo Tolosa
  Analysis of Sovereign Debt Structure in the
Context of a Balance Sheet Approach
  Sovereign Debt Across Countries and Over Time
  Determinants of Debt Structure
  Closer Look at Vulnerabilities
  Conclusions
  References
V. Financial Sector Development: Public Debt Markets
  Hemant Shah
  Financial Sector in Central America
  Organization of Public Debt Management
  Dual Sovereign Issuers: Government and the Central Bank
  Primary Issuance of Public Debt
  Secondary Markets
  Investor Universe, and Regulation of Investments in Public Debt
  The Challenge of Creating a Regional Market
  Key Problems and Recommendations
  Conclusions
VI. Characterizing Monetary Policy
  Luis I. Jácome H. and Eric Parrado
  Institutional Framework for Monetary Policy
  A Snapshot of Monetary Policy Formulation and Execution
  Empirical Regularities Supporting the Characterization of Monetary Policy
  Conclusions
  Appendix 6.1. Policy Reaction Function
  References
Boxes
2.1. Growth Accounting Framework
4.1. Measures of Currency Mismatch Risk
Tables
1.1. Central America: Real GDP Growth
1.2. Central America: Regional and Bilateral Free Trade Agreements
2.1. Central America: Long-Term Real GDP Growth by Country
2.2. Growth Accounting Across Regions, 1960-2003
2.3. Ranking of Ease of Doing Business
2.4. Cross-Country Growth Regressions
2.5. Fixed-Effects Panel Regressions
2.6. Scores of Institutional Quality
2.7. Estimated Impact on Growth of Improving Institutions
2A.1. Actual and Predicted Growth, Cross-Sectional Regressions, 1995-2003
3.1. Main Characteristics of Mandatory Public Old Age Pension Systems
3.2. Defined-Benefit Systems: Average and Minimum Old Age Pensions
3.3. Defined-Benefit Systems: Balances and Reserves, 2004
3.4. Projected Population Aging
3.5. Defined-Benefit Systems: Real Internal Rates of Return on Contributions
3.6. Replacement Rates under Different Rates of Return in First-Pillar, Defined-Contribution Systems
3.7. Administrative Costs in Defined-Benefit Systems
4.1. Domestic Debt Share Determinants
4.2. Elasticity of Ratio of Debt to GDP vis-à-vis the Real Exchange Rate
4.3. Elasticity of the Sovereign's Leverage Ratio vis-à-vis the Real Exchange Rate
4.4. Ratio of Short-Term Debt to Reserves
5.1. Structure of Financial System
5.2. Securities Issued by the Ministry of Finance and Central Bank
5.3. Auction Mechanisms for Public Debt Securities
5.4. Secondary Trading of Fixed-Income Domestic Securities
6.1. Breakdown of Index of Legal Central Bank Independence: Central America versus South America and Mexico
6.2. Taxonomy of Monetary Policy Strategies
6.3. Volatilities of Selected Macroeconomic Variables, 2000-05
6.4. Interest Rate Reaction Function of Central Banks, 1996-2005
6.5. Exchange Rate Crawl Reaction Function, 1996-2005
6.6. Central Banks' Money Reaction Function, 1996-2005
6A.1. Main Provisions of Central Bank Legislation as of 2005
6A.2. Main Features of Monetary Policy
Figures
1.1. Central America: Selected Macroeconomic Indicators
2.1. Poverty Rates, Nationally Defined Poverty Line
2.2. Central America: Long-Term Real GDP Growth
2.3. Real Per Capita GDP by Country
2.4. Central America: Growth Accounting
2.5. Central America: Per Capita GDP and Total
Factor Productivity
2.6. Real Per Capita GDP and Total Factor Productivity by Country
2.7. Central America: Real Per Capita GDP
2.8. Trade Openness: Total Exports Plus Imports
2.9. Exports to the United States
2.10. Comparison of Institutional Ratings
2A.1. Growth Accounting, by Country
3.1. Pension Coverage: Number of Contributors as a Share of the Labor Force, 2003
3.2. Contribution Rates for Mandatory Old Age, Disability, and Survivor Pensions
3.3. Standard Retirement Age and Life Expectancy at Age 60
4.1. Composition of Sovereign Debt
4.2. Structure of External Debt, 2001-05
4.3. Foreign Currency Debt
4.4. Short-Term Debt
4.5. Domestic Debt: Predicted and Actual
4.6a. Domestic Debt and Foreign Currency Debt Share
4.6b. Inflation History and Foreign Currency Debt
4.7. Short-Term Share and Total Debt
4.8. Sovereign Debt
4.9. Debt with Variable Interest Rate, 2005
4.10. Volatility of Revenue Growth, 1990-2005
5.1. Domestic Central Bank Debt/Domestic Government Debt, 2005
5.2. Potential Debt Auctions Per Year
5.3. Actual Debt Auctions Per Year
6.1. Inflation in Central America and the Western Hemisphere
6.2. Inflation in Central America, the Western Hemisphere,and Industrialized Countries
6.3. Legal Central Bank Independence before and after Reform
6.4. Legal Central Bank Independence, All Latin America
6.5. Central Bank Reform and Inflation in Central America
6.6. Inflation and Legal Central Bank Independence in Latin America, 2000-03
6.7. Inflation and Legal Central Bank Independence in Latin America, 2004-05