The Role of Structural Reforms in Raising Economic Growth in Central America

21 Pages Posted: 8 Nov 2011

Date Written: October 2011


Central America experienced moderate growth during the last decade, including in the years leading up to the global financial crisis, but the rate of convergence toward advanced country income levels has still been slow. Moreover, forecasts imply that these trends will continue. What can be done to spur higher growth in Central America? We bring new data to bear on this question-version 7.0 of the Penn World Table and a new IMF database on structural reforms. Our cross-country panel regression of economic growth using System GMM captures the importance to growth of conditional convergence, factor accumulation, and macro policies. In addition, structural efficiency is a significant factor in explaining growth performance. We construct a broad index of efficiency and find that increasing the degree of structural efficiency by one standard deviation raises growth by ½ percent. This implies that Central American countries could significantly increase their long-run growth rates by increasing the flexibility of markets and improving the quality of regulation.

Keywords: Central America, Cross country analysis, Economic growth, Economic models, Fiscal reforms

Suggested Citation

Swiston, Andrew J. and Barrot, Luis-Diego, The Role of Structural Reforms in Raising Economic Growth in Central America (October 2011). IMF Working Paper No. 11/248, Available at SSRN:

Andrew J. Swiston (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Luis-Diego Barrot

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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