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

Andrew Swiston and Luis-Diego Barrot ()

No 2011/248, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; financial system; financial system Index; product markets index; Economic growth; Central America; Structural Reform; Financial Reform; Human Capital; Factor Accumulation; System GMM; product markets market index; growth performance; Central America dummy; Structural reforms; Personal income; Commodity markets; Purchasing power parity (search for similar items in EconPapers)
Pages: 20
Date: 2011-10-01
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Citations: View citations in EconPapers (7)

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