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Distributional effects of the Panama Canal expansion

Author

Listed:
  • Bussolo, Maurizio
  • De Hoyos, Rafael E.
  • Medvedev, Denis

Abstract

This paper uses a dynamic macro-micro framework to evaluate the potential distributional effects of the expansion of the Panama Canal. The results show that large macroeconomic effects are only likely during the operations phase (2014 and onward), and income gains are likely to be concentrated at the top of the income distribution. The additional foreign exchange inflows during the construction and operations phases result in the loss of competitiveness of non-Canal sectors (Dutch disease) and in higher domestic prices, which hurt the poorest consumers. In addition, the construction and operation activities increase demand for more educated non-farm formal workers. Although these changes encourage additional labor movement out of agriculture and from the informal to the formal sector, much of the impact is manifested in growing wage disparities and widening income inequality. Using the additional revenues of the Canal expansion in a targeted cash transfer program such as"Red de Oportunidades", the Government of Panama could offset the adverse distributional effects and eradicate extreme poverty.

Suggested Citation

  • Bussolo, Maurizio & De Hoyos, Rafael E. & Medvedev, Denis, 2011. "Distributional effects of the Panama Canal expansion," Policy Research Working Paper Series 5848, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5848
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    References listed on IDEAS

    as
    1. Martin Ravallion & Shaohua Chen & Prem Sangraula, 2007. "New Evidence on the Urbanization of Global Poverty," Population and Development Review, The Population Council, Inc., vol. 33(4), pages 667-701.
    2. Ferreira, Francisco H. G. & Leite, Phillippe G., 2003. "Policy options for meeting the Millennium Development Goals in Brazil : can micro-simulations help?," Policy Research Working Paper Series 2975, The World Bank.
    3. Esther Duflo & Rohini Pande, 2007. "Dams," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 601-646.
    4. Michael Lokshin & Ruslan Yemtsov, 2005. "Has Rural Infrastructure Rehabilitation in Georgia Helped the Poor?," World Bank Economic Review, World Bank Group, vol. 19(2), pages 311-333.
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    More about this item

    Keywords

    Economic Theory&Research; Labor Policies; Markets and Market Access; Labor Markets; Emerging Markets;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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