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Vanishing Growth in Latin America

The Late Twentieth Century Experience

Edited by Andrés Solimano

Economic growth in Latin America and the rise of material welfare has lagged behind that of more dynamic areas of the world economy. In a region prone to policy experiments, the policies of the Washington Consensus applied since the 1990s failed to bring sustained growth to most of Latin America. Andrés Solimano and an impressive set of contributors analyze the last 40 years in order to determine the role of economic reforms, external conditions, factor accumulation, income inequality, political instability and productivity in explaining GDP increases. The book also looks at cycles of growth, identifying periods of rapid growth and contrasting them with periods of stagnation and collapse.
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Chapter 5: Economic Growth in Central America

Manuel R. Agosin and Roberto Machado


Manuel R. Agosin and Roberto Machado 5.1 INTRODUCTION Since Robert Barro (1991) gave rise to an abundance of empirical literature on economic growth, many subsequent applied studies have included in their explanations of growth variables related to, inter alia, the accumulation of physical and human capital, macroeconomic stability, level of openness of the economy, availability of external financing, conditions of world trade and the level of institutional development. Despite this voluminous literature, there are no specific studies on Central American countries.1 This study aims to facilitate understanding of the factors behind economic growth in these countries since 1960, paying special attention to the 1990s. The study is based on stylized facts of growth in Central America, and a theory that is extremely simple but one that is believed to capture the special characteristics of these countries. The determining factors of economic growth were studied in the following seven countries: Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Panama. Belize is also included in the descriptive analysis. Not only do these countries share a geographical location (except the Dominican Republic) and a common history, they also have very similar production structures and resources: historically, they are all exporters of tropical crops (coffee, bananas and sugar) and, over the last decade, have all increasingly specialized in tourism and in processing manufacturing products (mainly clothing) for the United States market.2 With the exception of Costa Rica and Panama, all the countries have experienced considerable migration over the past two...

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