Selected Issues Papers

Panama exhibits high income inequality largely driven by disparities between regions rather than within them. The Panama Canal corridor, including Panama City and Colón, benefits from concentrated economic activities with high labor productivity and incomes. In contrast, rural and indigenous provinces face structural constraints such as poor infrastructure, limited education, and high informality, resulting in low productivity and poverty. Accounting decomposition shows that regional income gaps stem mainly from labor productivity differences, influenced by population density, sectoral composition, education, healthcare access, and infrastructure. These factors collectively underpin Panama’s pronounced regional income disparities.