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

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Author Info

  • Andrew Swiston
  • Luis-Diego Barrot

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/248.

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Length: 20
Date of creation: 01 Oct 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/248

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Related research

Keywords: Economic growth; Human capital; Consumption; Economic models; Fiscal reforms; financial system; domestic financial system; growth rates; growth rate; financial sector; gdp per capita; bond; per capita income; total factor productivity; financial systems; growth model; financial reform; business cycle; domestic financial intermediation; financial markets; analysis of economic growth; interest rate liberalization; domestic financial systems; real gdp; capital formation; systemic banking crises; financial reforms; international financial statistics; gdp growth; financial intermediation; growth accounting;

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References

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  2. Ari Aisen & Francisco José Veiga, 2010. "How does political instability affect economic growth?," NIPE Working Papers 5/2010, NIPE - Universidade do Minho.
  3. Antonio Spilimbergo & Alessandro Prati & Jonathan David Ostry, 2009. "Structural Reforms and Economic Performance in Advanced and Developing Countries," IMF Occasional Papers 268, International Monetary Fund.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
  5. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," Research Department Publications 4293, Inter-American Development Bank, Research Department.
  6. Roberto Chang & Linda Kaltani & Norman Loayza, 2005. "Openness can be good for Growth: The Role of Policy Complementarities," DEGIT Conference Papers c010_021, DEGIT, Dynamics, Economic Growth, and International Trade.
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  8. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
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    • Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier.
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  12. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  13. Alessandro Prati & Massimiliano Gaetano Onorato & Chris Papageorgiou, 2013. "Which Reforms Work and under What Institutional Environment? Evidence from a New Data Set on Structural Reforms," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 946-968, July.
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Cited by:
  1. Krasnopjorovs, Olegs, 2013. "Latvijas ekonomikas izaugsmi noteicošie faktori
    [Factors of Economic Growth in Latvia]
    ," MPRA Paper 47550, University Library of Munich, Germany.
  2. Stephanie Medina Cas & Andrew Swiston & Luis-Diego Barrot, 2012. "Central America, Panama, and the Dominican Republic," IMF Working Papers 12/234, International Monetary Fund.
  3. Christian A Johnson, 2013. "Potential Output and Output Gap in Central America, Panama and Dominican Republic," IMF Working Papers 13/145, International Monetary Fund.

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