Female Employment and Economic Integration in Central America

Extensive literature has shown that women’s employment contributes to increasing rates of household savings and economic growth. Likewise, evidence has been reported that in an economic integration scheme, such as that of Central America, the strong economic interdependence existing between countries—because of their relatively high trade flows of imports and exports—gives rise to the spread of economic developments occurring in a country. This paper investigates the extent to which the increase in female employment in the countries of the Northern Triangle of Central America (Guatemala, El Salvador, and Honduras) leads to the increase in growth rates in the other countries (Nicaragua, Costa Rica, and Panama). For this purpose, principal components, which is a data compression methodology, is used. The variables included in the vector of principal components are the female-to-male employment ratios in the industrial sectors of the Northern Triangle countries. All data used in the analyses were taken from the World Bank’s World Development Indicators. The first principal component of these variables explains 77 percent of the variance, and its decrease represents the deindustrialization of the respective countries. The second principal component accounts for 17 percent of the variance, and its increase represents the expansion of the service sector. Error correction equations showed that the first principal component of the female-to-male employment ratios of the industrial sector in Guatemala, El Salvador, and Costa Rica exerted positive impacts on the economic growth rates of Nicaragua, Costa Rica, and Panama, while the second principal component exerted negative impacts. The results also showed that the ratios of female to male industrial employment, as well as the first principal component, fell as tariffs on imports were reduced, reflecting a process of deindustrialization which led to losses in economic growth, decreased trade flows, rising youth unemployment, and expansion of the underground economy with adverse productivity impacts. Likewise, economic stagnation and rising unemployment have contributed to irregular emigration and increased remittances. Another important result is that the process of deindustrialization, fueled by the extreme openness of economies, has generated a substantial increase in the homicide rate. In summary, the results show that female employment generates increases in the economic growth rate of the respective country and in the other member countries. However, this process of regional employment induction is undermined by the extreme openness of economies, which implies that the main beneficiaries of economic dynamism induced by increased female employment may be the countries from which it is imported. These findings suggest that globalization and openness frustrate national development efforts. The policy recommendations include promoting women’s employment through increased education, childcare infrastructure, anti-discrimination efforts, and a coordinated regional employment strategy—while also emphasizing the need for policies aimed at reindustrialization and re-agriculturalization to ensure sustainable growth, reduce violence, and achieve self-sufficiency.