Miguel Angel Santos

Shifting Gears: A Growth Diagnostic of Panama

Panama has been one of the fastest growing economies in the world over the previous decade. Growth has been spearheaded by the development of a modern service sector on the activities surrounding the Canal, and non-residential construction. Large public infrastructure projects and the private provision for infrastructure demanded by the service sector, have fueled growth and created a vibrant labor market for non-skilled workers. Two warning signals hover over Panamas stellar performance. The construction sector has been growing for a decade at a rate that is equivalent to doubling its stock of structures every four years. The demand for non-residential construction cannot grow indefinitely at a higher rate than the rest of the economy. This feeds into the second signal: Income inequality. In spite of the minor improvements registered over the accelerated-growth spell, Panama remains amongst the worlds top five most unequal countries. Both warning signals point out to the need of further diversifying the Panamanian economy, and promoting economic activity in the provinces so as to deconcentrate growth and make it more inclusive. We deployed our Growth Diagnostic methodology in order to identify potential binding constraints to that process. Skilled labor, necessary to gradually diversify into more complex and high value-added activities, is relatively scarce. This scarcity manifests into large wage-premiums to foreigners across all occupations, which are particular large within more complex industries. Major investments in education have improved indicators of schooling quantitatively, but quality remains a major concern. We find that Panamas immigration policies are preventing skills from spilling over from their special economic zones into the rest of the economy. On top of that, the list of professions restricted to Panamanians and other constraints on skilled labor flows, are constraining even further the pool of skills. As we document here, these efforts are not helping the Panamanian workers, quite the contrary. We also find that corruption, and to a lesser extent, red tape, are other important factors that shall be addressed in order to allow Panama to shift the gears of growth, tackle inequality and continue growing at a fast pace.

Towards a Prosperous and Productive Chiapas: Institutions, Policies, and Public-Private Dialog to Promote Inclusive Growth

Since the Zapatista revolution of January 1994, enormous amount of resources coming from the federal government have poured over Chiapas. The gap in years and quality of education has been reduced significantly; and road, port and airport infrastructure have undergone a dramatic transformation. And yet, the income gap between Chiapas and the rest of Mexico has only widened. To understand why, a multi-disciplinary team of twelve experts have devoted significant time and resources to study different aspects of the development dynamic of Chiapas. As a result, 5 base documents have been published analyzing Chiapas: - Complexity profile - Growth Diagnostic - Institutional Diagnostic - Poverty profile - Pilot of productive dialogs and inclusive growth in an indigenous community This report resumes the findings from these and articulates their corresponding recommendations into a policy plan. According to our hypothesis, Chiapas is wedged in a low productivity trap. A modern production system, responsible for productivity increases, income and development elsewhere in the world, requires a number of complementary inputs or capacities that are absent in Chiapas. As a result, its economy consists of a few primary products of little or no technological sophistication, and a vibrant service industry fueled by public expenditure in its larger cities. In this situation, there are no incentives to acquire additional education or skills because there is no demand for them in the economy. As we have proved, the few that manage to emigrate earn salaries elsewhere in Mexico slightly above other migrants with similar qualifications. As it turns out, it is not about the Chiapanecos, it is about Chiapas. To overcome the current dilemmas and spark the engine of growth, Chiapas needs to resolve its issues of coordination, connectivity and gradually promote economic activities of higher complexity. Yazaki, one of the few manufacturers present in Chiapas, is an example of the role of the state in helping the economy to overcome the chicken-and-egg dilemmas, providing the public goods required - in an initial push – by a more complex economy. Our recommendations are based in identifying the productive capabilities embedded within the current productive structure of Chiapas four largest urban agglomerations, and leveraging on them to board on different potential, more complex industries that use a similar base of knowledge. To conquer those industries and diversify its economy, Chiapas needs a public-private agency empowered to iteratively solve the issues and bottlenecks these potential industries face in each particular place. Public transport and housing policy can be used as means to incorporating the surrounding communities into the increasingly modern economies of urban centers. Special economic zones and agro-industrial parks can be used to spur productivity in those areas where labor and appropriability are the most binding constrains.

The Right Fit for the Wrong Reasons: Real Business Cycle in an Oil-dependent Economy

Venezuela has an oil-dependent economy subject to large exogenous shocks and a rigid labor market. These features go straight to the heart of two weaknesses of real business cycle (RBC) theory widely reported in the literature: neither shocks are volatile enough nor real salaries sufficiently flexible as required by the RBC framework to replicate the behavior of the economy. We calibrate a basic RBC model and compare a set of relevant statistics from RBC-simulated time series with actual data for Venezuela and the benchmark case of the United States (1950-2008). Despite Venezuela being a heavily regulated economy, RBC-simulated series provide a good t, in particular with regard to labor markets.