Country Economic Memorandum
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Publication
Taming Volatility: Fiscal Policy and Financial Development for Growth in the Eastern Caribbean
(World Bank, Washington, DC, 2016-06)The report is structured in four chapters that outline the main sources of volatility in the region and suggest ways to mitigate the impacts of that volatility on growth. Chapter one presents stylized facts associated with the growth performance of the Eastern Caribbean over the last 40 years. It contrasts the growth performance of the OECS with the rest of the Latin America region and shows that the two groups of countries have shown significant heterogeneity over the business cycle. The chapter also highlights some of the factors that might be responsible for the volatility of growth in the OECS, including the region’s exposure to natural disasters, high debt, and adverse developments in the financial sector. Chapter two provides new evidence on output volatility and the cyclicality of fiscal policy in the OECS and discusses why countries are better off avoiding a pro-cyclical fiscal policy stance. Chapter three assesses the level of financial development in the region as well as the relationship between financial development, growth, and volatility. The chapter also explores critical policy options to strengthen financial development in the OECS. Chapter four assesses empirically the combined effects of terms of trade volatility, fiscal policy (pro) cyclicality, and financial development on growth in the OECS and other countries using two complementary modeling approaches. First, through an econometric model using panel data for 175 countries over the period 1980-2010. Second, by using impulse-response analysis based on a structural model of the business cycle in the OECS region. -
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Jamaica - Country Economic Memorandum : Unlocking Growth
(World Bank, 2011-05-26)The objective of this report is to identify the main obstacles to longer term growth in Jamaica. The report takes a holistic approach, examining a large set of economic and social factors that may be hindering growth and filtering them through a growth diagnostic analysis to narrow the focus to those that constrain growth the most. Building on the results of the growth diagnostic analysis, the report then discusses each key obstacle and identifies possible reform scenarios to unlock growth in Jamaica. The report also examines how the country might further accelerate growth through private sector development. This Country Economic Memorandum assesses the key causes that have stalled Jamaica's economy over the past four decades and presents recommendations to unlock its growth potential. There is a basis for optimism in that Jamaica has had political stability, high rates of private investment, significant reduction of poverty in rural and urban areas, and improved income distribution. Nonetheless, this report shows that, since independence in 1962, long-term economic growth has been disappointing and underperformed most other countries. The findings of this study indicate that Jamaica's disappointing economic performance is traceable to low productivity caused by (i) deficiencies in human capital and entrepreneurship that are due to high migration rates and to deficiencies in the quality of education and training offered to the labor force, among other factors, (ii) a high rate of crime, and (iii) distortionary tax incentives combined with 'enclave' development that does not spill over to the rest of the economy. -
Publication
Chile : Fostering Technology Transfer and Commercialization
(Washington, DC, 2009-01)Chile is an economy rich in natural resources and their efficient exploitation has proved the right strategy to grow successfully over the last few decades. More recently, in the broader context of increasing globalization and competitive pressures, it has chosen as its main development driver the contribution that arises from innovation and the adoption of higher levels of technology to enhance productivity growth and to add to national competitiveness. There is strong public commitment to increase funding to stimulate innovation, but improvements in the technology transfer and commercialization system will not only involve an increase in funding but also changes in incentives, funding reallocations and institutional building. This report responds to a request by the CNIC (National Innovation Council for Competitiveness - Consejo Nacional de Innovacion para la Competitividad), through its Secretariat, to review Chile´s knowledge/technology transfer and commercialization system and identify practical steps to accelerate the development of an effective and dynamic system. The overall objective is to expand the number of firms in Chile that use knowledge as its main competitive strategy. The remainder of the report is structured as follows. Chapter two conducts a diagnostic of Chile's current system, and chapter three provides recommendations to upgrade technology transfer and commercialization practices and incentives in Chile considering its current endowments and lessons learned from international reference models. Chapter four summarizes the conclusions of the review. -
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Colombia : Country Economic Memorandum, The Foundations for Competitiveness
(Washington, DC, 2005-11)Since Colombia's last Country Economic Memorandum (CEM) (1989) the country has endured several years of slow growth, burgeoning fiscal deficits, and high levels of debt. Colombia now is seeking to join a free trade agreement (FTA) with the United States in the hope of stimulating growth and improving living conditions for the country as a whole. In response to the opportunities and challenges presented by the proposed FTA with the United States, the Colombian government has launched an "internal agenda," an action plan that involves major stakeholders -- public sector, private sector, and regional government -- aimed at obtaining greater levels of competitiveness. The government has articulated the need for greater understanding of the impact of the proposed FTA, and a strategy for a reform agenda that would enable the country to capture the potential benefits from freer trade and facilitate the transition to greater openness. This report is produced as an input into Colombia's reform agenda. It starts with an executive summary and policy report which presents the main findings and key policy recommendations of the three chapters comprising the report. Chapter 1 evaluates Colombia's business and growth environment and the likely challenges the manufacturing sector will face in taking advantage of the FTA with the United States. The chapter consists of three sections. Section I uses detailed survey data to identify the top constraints on growth and competitiveness of Colombian firms. Section 2 analyzes key developments in the manufacturing sector following the trade liberalization of 1990-91 using micro-level data, and highlights areas where reforms are needed. Section 3 examines the challenges and opportunities faced by small and medium-sized businesses in confronting a more open trading environment. Chapter 2 builds on the microeconomic issues raised in the first chapter, and follows with an evaluation of macroeconomic and fiscal (tax and expenditure) policies that are important for making the Colombian economy competitive. In this context, the study also evaluates the sustainability and trajectory of public debt. Finally, Chapter 3 examines the likely impact of agricultural liberalization on income distribution in the country under the proposed Colombian-U.S. FTA -- identifying who are the likely gainers and losers -- and assesses its impact on economic growth and poverty in the country. -
Publication
Bolivia : Country Economic Memorandum, Policies to Improve Growth and Employment
(Washington, DC, 2005-10)Bolivia is today at a crossroads. Several years of growth were achieved in the early and mid 1990s resulting from structural reforms which encouraged an upswing in private investment and productivity gains. However, more recently a series of economic shocks have hit Bolivia. These shocks not only had a negative impact in and of themselves, but they also led to growing political and social instability and public disenchantment with the reform program, which has lost momentum in the past five years. This, in turn, reinforced an economic downturn, to the point where the gains in poverty reduction and employment creation of the 1990s have been lost. This report recommends that once a degree of political consensus and social stability is achieved, Bolivia should retake the reform agenda to promote private investment and productivity gains, tackling micro-level obstacles such as contract security, legal enforcement, legal and regulatory burden, and trade policy, among others. The report outlines policies that would allow Bolivia to achieve faster growth. Development and poverty have many dimensions, and growth is necessary-but not sufficient-for development and poverty reduction. This report is focused narrowly on growth. Drawing on long term trends, it diagnoses current problems in light of the country's growth objectives that are being supported by the Bank's overall program as articulated in the Country Assistance Strategy. -
Publication
Uruguay : Sources of Growth, Policies for the Development of Human Capital, Integration, Competition and Innovation
(Washington, DC, 2005-06)Uruguay, with a prosperity built on beef and other meat exports, was among the fastest-growing economies in the world at the turn of the twentieth century. In parallel with economic successes driven by exports under a liberal trade regime, early in the 20th century, Uruguay had already initiated a strong and efficient welfare state. By contrast, the slowdown in per capita GDP growth has been more severe in the past 40 years (over 1961-99 per capita GDP growth averaged 1.1 percent, which is two-thirds of the rate achieved by Latin America) - except in the nineties when Uruguay (temporarily) grew at a faster rate than the region. In the 1961-1999 period, the rate of growth was less than half that of industrial countries, and less than one-fourth of that of East Asia. Uruguay must consolidate its incipient economic recovery following a prolonged, and deep recession: the economy shrank 17 percent, and household incomes dropped over 20 percent in real terms over 1999-2003. Notwithstanding, the economy bounced back strongly since mid-2003, and GDP growth in 2004 is estimated at 12.3 percent; the level of unemployment fell from almost 20 percent at the end of 2002, to 12.1 percent at the end of 2004. However, there is a qualitative difference between economic recovery and sustained growth. The country's relatively poor growth performance over the last half century can be traced to several key structural weaknesses, i.e., a pro-cyclical fiscal policy, intrinsically associated with lack of flexibility in social spending; a high and growing dependency ratio (between retirees and the working age population) - worsened by emigration by young people - and increased levels of informal employment; and, lack of effective competition in infrastructure sectors, dominated by the public sector and - in a related manner - the setting of tariffs with a fiscal criterion that limits incentives to increase efficiency, among several other structural factors. The objective of this study is to help develop a "shared" vision of growth with equity in Uruguay, but, unless shared, the policies and reforms discussed are unlikely to be implemented, maintained, or to be credible. The first pillar of this framework involves policies leading to fiscal and financial stability, the efficient operation of factor markets (capital and labor), and, the strengthening of social protection. The second pillar of policies and reforms aims at the creation of an investment climate, favorable to the accumulation of physical and human capital; it includes trade and integration policies, the development of a competitive framework - particularly in infrastructure sectors; and, policies on education and health for the development of human capital. The third pillar is formed by the policies and reforms that promote growth driven through innovation; it will require a thorough transformation of institutional capabilities, entrepreneurial culture, and the system of innovation. -
Publication
Organization of Eastern Caribbean States : Towards a New Agenda for Growth
(Washington, DC, 2005-04)The Organization of Eastern Caribbean States (OECS) is at an economic crossroads. A secular slowdown in growth, a radical transformation of the external environment, high debt and fiscal imbalances, and persistent unemployment and poverty have combined to create an imperative for redefining the OECS strategy for growth and economic development. The crucial elements of such a strategy are: (1) the formulation of a long-term vision that positions the OECS Economic Union in the global economy; (2) reorientation o f the basic development model toward greater openness, competition and a more level playing field in the sub-regional economy, and (3) the creation of new capacity in the labor force and the private sector to take advantage of emerging opportunities in the global market place, and in the public sector to coordinate and support the process o f deeper regional (and global) integration. The current challenge facing the sub-region is how to reinvigorate and sustain growth alongside the following imperatives --reducing high unemployment and poverty rates, restoring fiscal and debt sustainability, and securing a more sustainable external position in an increasingly competitive global environment. -
Publication
Latin America and the Caribbean : A Time to Choose, Caribbean Development in the 21st Century
(Washington, DC, 2005-04)This report seeks to discuss the critical constraints to sustainable, job-creating growth, and to present policy options for the region and country Governments to stimulate such growth. It analyzes growth performance in the Caribbean over the last four decades, and highlights key determinants of past and also future growth. Given the recent deterioration in government finances, the report then studies key areas of government expenditure. A discussion of the climate for private investment follows, which looks at the framework that shapes the risks and returns for private investment. The report then discusses the impact of recent trade developments on the Caribbean, the future outlook in view of major ongoing changes in the international environment, as well as the opportunities that are likely to emerge, especially in the services sector. It then focuses on some key factors that have been significant in determining past growth in the Caribbean, including labor market issues; education, skill development and training; and, infrastructure. The report suggests a pro-active approach for the region to take on the challenges of a group of small states, facing severe resource constraints, eroding trade preferences, declining productivity, and increasing risk of macro instability. First, it argues that greater integration within the CARICOM region on several fronts will be a critical input into improving competitiveness. Second, on trade, the report argues that a negotiation of an orderly dismantling of preferences in return for increased technical and financial support would be in the region's interest. Third, improving the investment climate, and orienting it away from being subsidy-driven, addressing problems of high taxes and inefficient customs procedures, as well as specific infrastructure deficiencies, would help improve the quality of private investment and maintain the high levels of Foreign Direct Investment (FDI). Fourth, making the public sector more cost-effective and delivering services more efficiently, through greater reliance on the private sector, seeking cost efficiencies through regional cooperation. Fifth, improving the quality and effectiveness of human resources would enable diversification into knowledge-based activities including services, increase exports, and improve productivity in existing activities. -
Publication
Guatemala : Country Economic Memorandum, Challenges to Higher Economic Growth
(Washington, DC, 2005-03)The purpose of this Country Economic Memorandum (CEM) is to contribute to the ongoing discussion in Guatemala about means of accelerating economic growth to help achieve targets set in the 1996 Peace Accords as a key ingredient in the fight to reduce national poverty rates. Chapter I examines historical and recent developments and uses a benchmarking growth methodology to identify the measures and policies most conducive to increasing long-term economic growth. Those areas that are identified as critical on the list of priorities are developed further in separate chapters. Chapter II focuses on the important role of human capital development for growth, along with the complementary policies for improving education and health. Chapter III examines the investment climate, broadly understood, which includes governance, access to infrastructure, and financial development. Chapter IV analyzes the importance of innovation and technology adaptation for productivity growth. Chapter V looks at trade openness and the catalytic role that the recently negotiated free trade agreement with the U.S. (CAFTA) could have on the Guatemalan economy. -
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Honduras - Development Policy Review : Accelerating Broad-based Growth
(Washington, DC, 2004-11-08)This Development Policy Review (DPR) discusses Honduras's development agenda with a special focus on accelerating economic growth. This focus emerges from the Honduras Poverty Reduction Strategy Paper (PRSP), which identified growth as the main determinant o f the evolution of poverty, and guides the review of policy developments in various economic, social and infrastructure sectors. To the extent that the measures and reforms recommended in this report are able to generate a more attractive investment climate in Honduras, they will clearly serve to promote a faster accumulation o f physical capital, which is one component of economic growth. The main thrust of most of these reforms, however, is to improve the quality of factor services and the efficiency of factor allocation, which, in a growth accounting framework, are reflected in faster productivity growth. Recommended are measures to expand the coverage and quality o f education, measures to promote financial market development, measures to remove price distortions, attract greater private investment and improve the regulatory framework, as well as measures contemplated on the governance front, especially in the area o f improving public sector financial management and the civil service.