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

  • Andrew Swiston
  • Luis-Diego Barrot

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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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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  1. Roberto Chang, & Linda Kaltani & Norman Loayza, 2006. "Openness Can be Good for Growth: The Role of Policy Complementarities," Working Papers Central Bank of Chile 373, Central Bank of Chile.
  2. Reinhart, Carmen M. & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
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  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. Ari Aisen & Francisco José Veiga, 2011. "How Does Political Instability Affect Economic Growth?," IMF Working Papers 11/12, International Monetary Fund.
  7. 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.
  8. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  9. 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.
  10. 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.
  11. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises; A New Database," IMF Working Papers 08/224, International Monetary Fund.
  12. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, vol. 104(C), pages 184-198.
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