A Brief Analysis of the Central America and the Caribbean Economy | FocusEconomics
Economic Growth Engines. This reflects the fact that while exports rose at an average annual rate of 4. Particularly worrying in the post-crisis economic performance of the region is the fact that exports are expanding at a slower pace than the whole economy for the first time in many years, perhaps signaling the end of success of an export-led growth strategy. In the contribution of private consumption increased 10 points, to an average of As ECLAC a and b argues, this shift reflects greater access to consumer credit, somewhat higher real wages and an increase in formal employment in some economies.
Insufficient Productivity. Investment is the key determinant of economic growth and is essential to modernize infrastructure and to expand productive capacities ECLAC The disappointing behavior of labour productivity in the region also has important linkages. Given insufficient investment in infrastructure, machinery and equipment there is no reason why labour productivity should rise to international levels.
Across all countries, with the exception of Chile, labour productivity has persistently lagged behind that of the United States. On average the employed labour force in the US is at least four times more productive than its counterpart in Latin America. Widening Income Gaps. Chile and Peru are the only countries which have persistently reduced their gap vis-a- vis the United States over the period from Given the sharp disparities in the distribution of income which mark Latin America as the most unequal region in the world, this implies that the living standards of large segments of the population remain low.
In order to address these disparities, the region will need sustained periods of high growth over the long term, not just isolated episodes of economic quick recovery. In its quest for high economic growth and stable macroeconomic fundamentals, the region is no longer stuck on a long, frustrating and ineffective path, as it was in the s and s.
It has made major progress on the macro-stabilization front, lowering inflation, reducing fiscal deficits and penetrating world export markets. Yet, Latin America is far from sustainably changing its development trajectory over the long term. Weak fiscal revenues, the pro-cyclical orientation of fiscal policy and in some cases a dependence on natural resource revenues are important obstacles to improving infrastructure and boosting long-term economic expansion.
Unfortunately, this subdued growth appears to be the new normality in the region, with just 2. Long-term sustainable growth both for Latin America and its individual economies requires a nuanced understanding of the heterogeneity of productive structures, institutions, labour markets and societal norms.
It will be a challenge to continue to decrease the levels of poverty and extreme poverty in the coming years, given current growth prospects. Continuous strong macroeconomic performance, coupled with prioritized social spending is urgently needed to reduce inequality across Latin America. Sustained growth also requires cooperative action from both the public and private sectors to enact reforms and increase productive capacities.
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Titelman and P. Rojas-Suarez, L. Incomes per capita have nearly doubled in real terms over the past three decades and some well-being indicators health, environment and life-satisfaction are comparable with or even above the OECD average. However, as the latest Economic Assessment of Costa Rica highlights the country faces old and new challenges that will need be addressed to continue developing in a sustainable way. Measures to restore fiscal sustainability are now urgent.
The fiscal challenge is the priority. The two bills the government proposed in — as part of a tax reform package — to replace the sales tax with a full-fledged VAT system and reform the income tax are still under discussion in the legislative assembly. It is urgent to approve them as soon as possible.
The two bills are well thought out and consistent with OECD advice: broadening tax bases and relying more on VAT are growth friendly ways to raise tax receipts.
Latin America: Opportunities and Challenges for the Governance of a Fragile Continent
These should focus on reforming the public employment system to prevent excessive automatic salaries increases and raise public sector efficiency. Reforming the public employment system is key to boost productivity and lower inequality as public administration inefficiencies hamper business dynamism and public sector employment contributes to rising inequality in Costa Rica.
Structural reforms and institutional changes are necessary to increase productivity and build a more inclusive society by reducing inequality and poverty. The three main areas of reforms to boost productivity include: 1 improving the framework of competition policy by strengthening the power of the competition authority and improving the governance of state-owned enterprises, which play a dominant role in many key sectors such as banking, electricity, insurance and telecoms; 2 enhancing links between the foreign and domestic firms and encouraging innovation by local enterprises through better links with universities; 3 improving transport infrastructure by simplifying the sector institutional framework and accelerating project execution.
Related Central America: Economic Progress and Reforms: 8
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