Panama's growth diagnostics
Abstract"In this context, the objective of the paper is to propose a set of recommendations on what needs to be done in order to assure success of the current growth strategy. We have no doubts on the value of strengthening Panama’s geographical comparative advantage with the Canal’s expansion. The key question is to identify the additional steps which could promote growth in the non-canal economy. In addition to making growth more sustainable, growth acceleration in the traditional sectors can result in a reduction of inequality, which is extremely high in Panama. To answer these questions the paper proceeds in the following way. Section 2 discusses some key features of Panama’s economic structure that are important for the analysis. Section 3 analyzes Panama’s growth using conventional techniques. In particular, we look at the role of the ‘fundamental’ determinants of growth, such as institutions, geography, and human capital. Also, the time series analysis shows that growth has experienced reversals while a standard sources-of-growth decomposition suggests that Panama has a severe productivity problem. Sections 4 to 8 deal with the GDM. Section 4 presents some general evidence from the Investment Climate Survey (ICS) on the main concerns of Panama’s entrepreneurs. Section 5 discusses all the problems that could imply low social returns to investment. Section 6 analyzes the issues related to problems of appropriability. Section 7 introduces the problems of self-discovery, and Section 8 looks at financing issues. Section 9 concludes"
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