Distributional Effects of the Panama Canal Expansion

43 Pages Posted: 20 Apr 2016

See all articles by Maurizio Bussolo

Maurizio Bussolo

World Bank - Chief Economist Office for Europe and Central Asia

Rafael E. De Hoyos Navarro

World Bank

Denis Medvedev

World Bank; American University

Date Written: October 1, 2011

Abstract

This paper uses a dynamic macro-micro framework to evaluate the potential distributional effects of the expansion of the Panama Canal. The results show that large macroeconomic effects are only likely during the operations phase (2014 and onward), and income gains are likely to be concentrated at the top of the income distribution. The additional foreign exchange inflows during the construction and operations phases result in the loss of competitiveness of non-Canal sectors (Dutch disease) and in higher domestic prices, which hurt the poorest consumers. In addition, the construction and operation activities increase demand for more educated non-farm formal workers. Although these changes encourage additional labor movement out of agriculture and from the informal to the formal sector, much of the impact is manifested in growing wage disparities and widening income inequality. Using the additional revenues of the Canal expansion in a targeted cash transfer program such as "Red de Oportunidades" , the Government of Panama could offset the adverse distributional effects and eradicate extreme poverty.

Keywords: Economic Theory & Research, Labor Policies, Markets and Market Access, Labor Markets, Emerging Markets

Suggested Citation

Bussolo, Maurizio and De Hoyos, Rafael E. and Medvedev, Denis, Distributional Effects of the Panama Canal Expansion (October 1, 2011). World Bank Policy Research Working Paper No. 5848. Available at SSRN: https://ssrn.com/abstract=1947191

Maurizio Bussolo (Contact Author)

World Bank - Chief Economist Office for Europe and Central Asia ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://https://blogs.worldbank.org/team/maurizio-bussolo

Rafael E. De Hoyos

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Denis Medvedev

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

American University

4400 Massachusetts Avenue N.W.
Washington, DC 20016-8029
United States

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