Transcript Determinants of Economic Growth: The Case of Guatemala

Determinants of
Economic Growth:
The Case of Guatemala
Maria Sophia Aguirre
Department of Economics
The Catholic University of America
Washington, DC
FADEP
Guatemala, Guatemala
October 11, 2007
Purpose of the Study

To understand the relevance of population and
family to the economic growth process in
Guatemala.

To investigate how the family engages in the
process of economic growth.

To empirically identify what model of economic
growth best fits the Guatemalan reality.

To facilitate and strengthen the present and
future population and family policy design and
implementation in Guatemala.
Data Used and Framework

Three databases
• Macroeconomic Variables compiled from 1950-2006:
yearly.
• ENEI 2004 and Census of 2002: by “lugar poblado.”

Framework
• Test of Economic Growth Theory
• Other explanatory variables have been added as
fitting.
• Analysis of Family Dynamics on wealth, income and
human capital.
We know from economic analysis
that in economic development
 There is a positive correlation between
human capital, infrastructure and economic growth
healthy institutions and economic development
health and income per capita
 These positive correlations reflect an essential
causal link running from human capital to
healthy institutions (social capital)
infrastructure and technology
 Life expectancy is a significant predictor of
economic growth
Role of the Family in the Economy
Basic
Activities
Means Used
Role of the
Family
Purpose
Production
Resources
Human Capital
Basic Needs
Exchange
Market
Human, Moral,
Social Capital
Profit
Consumption
Optimization and
Distribution
Appropriate
distribution
Wellbeing
(welfare)
Economic Theories of Growth

Neo-Classical Theory
 Embraces Malthus’s inverse relationship between
population growth and real growth but acknowledges the
key role of investment and thus savings in the process of
growth.

Human Capital Theory
 Human capital is an important source of economic
development that depends on advances in technological
and scientific knowledge. Increasing returns to scale.

Malthusian
• Inverse Relationship between population and
consumption.

Neo-Malthusian Theory: Ehrlich and Hardin
• Population depletes resources and damages the
environment.
Environmental Health, Welfare and Living
Conditions in Guatemala, 2004
Indicator
% access
House Connection: water
89/ 99
House Connection: sewerage
59/ 99
House Connection: electricity (rural-urban)
50-62 / 100
Water consumption (liter per person)
50/100 / 600
Improved Water (urban-rural)
88/98 / 100
Improved Sanitation
Access to Basic Essential Drugs
Immunization
90/100
85-90/ 91
92/100
Under-five mortality (per 1000)
49/6
Life Expectancy
65/85
Public Expenditures on Health (%GDP)
5.7 / 6.2
Paved Roads
87/94
Telephones Mainlines (per 1000)
77/597
Cellular Subscribers (Per 1000)
165/ 605
Literacy
69.1/100
Sources: Human Development Report, 2005 and Millennium Development Goal Indicators, 2005.
Leading Causes of Death and
Health Services in Guatemala
Adults
Total Non-communicable diseases (per 100 000 population)
Maternal mortality ratio (per 100 000 live births)
Cardiovascular diseases (per 100 000 population)
562.0
240
188.0
Non-communicable diseases other than cardiovascular, injuries
and cancer (per 100 000 population)
183
Injuries (per 100 000 population)
98.0
Cancer (per 100 000 population)
93.0
HIV/AIDS (825 infected and 77.8 new cases every year)
(per 100 000 population per year)
Tuberculosis (109 infected) (per 100 000 population)
21
13.1
Children (% of death among children)
Neonatal causes rate
37.3
Other causes rate (54.2% of children are undernourished in rural
areas. 32% in urban areas.)
29.8
Pneumonia rate
15.0
Diarrhea diseases rate (58% access dehydration therapy)
13.1
Injuries rate
1.5
Malaria rate
0.4
Measles rate
0.1
HIV/AIDS
2.7
Services
Antenatal care coverage - at least one visit
86
Antenatal care coverage - at least four visits (%)
68
Births attended by skilled health personnel (rural/urban)
25/66.1
Contraceptive prevalence rate
43.3
Hospital beds (per 10 000 population)
7.0
Poor health is highly correlated with
low levels of education and poverty
Prevalence of Child Death (%)
70
60
65.3
64.4
50
40
30
20
12
7.5
10
0
Lowest
wealth
quintile
Highest
wealth
quintile
Lowest
education
level
Sources: Care Health Indicators for Guatemala
Highest
education
level
Families face serious health and poverty
problems
• Lack of income and assets to attain basic
needs:
Human assets
Natural assets
Physical assets
Financial assets
Social assets
Aging security
• Vulnerability to adverse shocks are linked to
an inability to cope with them
I. Aggregated Level: Models


The openness of the economy: +
The Neo-Classical model seems to
perform best.
• Investment and Technology: +
• Population Growth: 0
• Domestic Research and Development: +
• Foreign Research and Development: 0
• Foreign Technology: +
Formal and Total Real GDP
1950-2006
MILLION OF QUETZALES
10000
9000
REAL GDP
8000
TOTAL REAL GDP
7000
6000
5000
4000
3000
2000
1000
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
0
YEAR
Sources: Banco de Guatemala, Urizar, Carmen , Julio Cole, Pablo Schneider and Caroll R. de Rodríguez “La
Economía Informal en Guatemala”, CIEN, 1992, and CIEN (2001)
500
14
300
250
200
150
8
6
4
Real Total GDP Per Capita
2
0
0
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
1969
1968
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1952
1951
1950
Years
100
POPULATION
50
Real GDP per Capita
350
10
Total Population (Millions)
Population and GDP Per Capita
1950-2006
12
450
400
Speed of Population Aging
Number of years for % of population aged 65 and over to rise from 7% to 14%
Colombia
Brazil
Thailand
Tunisia
Sri Lanka
Jamaica
Chile
Singapore
China
Azerbaijan
Japan
Spain
United
Poland
Hungary
Canada
United
Australia
Sweden
France
20
21
22
23
23
24
25
27
27
41
26
Source: US Census Bureau, 2000
45
45
47
53
65
69
73
85
115
Speed of Aging Population
1982-2006
2006
59
64
64
64
64
64 64
62 61
61
65
60
2003
2000
Year
1997
1994
1991
48
51 57
62
59
52 52
59
1988
69 73
74
1985
83
1982
0
20
40
60
80
Number of Years
Sources: Raw data obtained from INE.
130
100
120
140
Estimation of the Aging Population Path
Given Current Population Trends
(Base year: 2006)
30
Percentages
25
20
15
10
5
0
1
9
17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145 153 161
Number of Years
Estimation of Gross Domestic Product Per
Capita Under Various Assumptions
(Base year: 2006)
0.25
Log GDP Per Capita
GDPPC59
0.2
GDPPC74
GDPPCCT
0.15
0.1
0.05
0
1
4
7
10
13
16 19
22 25
28
31 34
37
40 43
46
Number of Years
Sources: Author Estimations
GDPPCCT was estimated based on the current trend of aging population acceleration.
GDPPC59 captures the per capita GDP path for the present population structure.
GDPPC74 captures the per capita GDP path for a 2% population growth.
49 52
55
Wealth Composite Distribution
for Head of Households (2004)
12
COMPOSITE
10
8
1%
8%
60%
6
8%
4
13%
2
10%
0
Sources: ENEI, 2004
Income Composite or NBI Distribution
for Head of Households, 2004
180
160
0.04%
140
COMPOSITE
29%
120
100
59.96%
80
10%
60
1%
40
20
0
Sources: ENEI, 2004.

Accentuated disparity in both income and
wealth distribution
•
•
•
•
•
•

Access to credit: +
Years of education: +
Remittances: +
Per capita income: + on Inequality
Openness of the economy: + on Inequality
Political Stability/Rule of Law: +
Human Capital
• Education (measured as average years of
education): 0
• Experience and stock of capital: +
• Increasing returns to scale on human capital: +
• Average years of education: 3
• Inefficiencies found in the social return of education.
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
MBS
MCS
19
50
19
54
19
58
19
62
19
66
19
70
19
74
19
78
19
82
19
86
19
90
19
94
19
98
20
02
20
06
Quetzales
Marginal Benefit and Cost of
Schooling, 1950-2006
Years
Sources: Own Econometric Estimation
In Summary
The Empirical Evidence

Supports openness in the economy.

Emphasizes the importance of investment and
technology as well as education for growth.

Indicates increasing returns to scale to
human capital

Lends no support for policies directed towards
population control.
III. Disaggregated Level
Wealth
Household Characteristics
Contribution to Wealth
Household Characteristcis
(% Increase/Decrease)
Sex of head of household
-18
Type of occupation
2.4
Age of the household’s head
6.1
Number of children
6.8
7.5
Higher level of education
Remittances
25
Urban vs. rural
26
Marriage
-30
-20
-10
29
0
10
Increase/Decrease of Welath
Sources: Own Econometric Estimation
20
30
40
Contribution of Marriage to Wealth
(% Increase)
Increased on Welath (%)
35
30
25
20
15
29
24
10
28
5
0
Total
Ladino
Race
Sources: Own Econometric Estimation
Indigenous
Percentage of Head of Households that
Report Owning Property and Holding
Savings
70.00%
Own Home
60.00%
Hold Savings
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Unions
Married
Source: ENEI (2004)
Separated
Divorced
Widowed
Remittances


The probability of receiving
remittances increases by 18.6% when
it is headed by married women.
In other type of family structures it
decreases by 2.7%.
III. Disaggregated Level: NBI
Household Characteristics
Contribution to Income (NBI)
Hosuehold Characteristics
(% Increase/Decrease)
Married
0.6
Higher level of
education
1.2
Urban vs. rural
2.9
0
0.5
1
1.5
2
2.5
3
Number of times that Increases/Decreases
Source: ENEI (2004)
3.5
Level of Income (NBI) and Wealth of the
Head of Household by Family Structure
COMPOSITE
16
13.84
14
NBI
12
WEALTH
10
8.95
35%
lower
8
5.51
6
5.48
4
2
0
MARRIED
Source: ENEI (2004)
NOT MARRIED
Average Wealth and Income Composite
per Family Structure and Race
Average Value of Composite
20.00
15.14
18.00
16.07
16.00
15.08
13.20
12.55
12.28
12.00
10.97
10.00
8.00
14.26
14.15
14.22
14.00
17.92
15.84
5.47
6.00 5.50
5.10 4.78
5.55 5.39
5.94 5.31
5.60 5.27
5.85
5.71
4.00
2.00
0.00
Wealth Poverty Wealth Poverty Wealth Poverty Wealth Poverty Wealth Poverty Wealth Poverty
Unions
Indigenous
Married
Ladinos
Sources: ENEI (2004)
Separated
Divorce
Marital Structure
Widows
Single Parents
Impact of Marriage by Race
80
Percentage Increase
70
60
69
Ladino
70
Indigenous
50
40
30
26
22
20
10
0
Wealth
Income
Family Structure by Race
66
Percentage of Households
70
56
60
Indigenous
Ladino
50
40
30
26
22
20
7
10
3
8
8
3
1
0
Unions
Married
Separated
Family Structure
Sources: ENEI (2004)
Divorce
Single
Parents
Human Capital



Educational levels are affected by
family structure.
Attendance to school is higher
among married households than
others.
It is also reinforced by remittances.
Factors Affecting
Child Schools Attendance
Area
-5
8
Race: Indigenous
Income
4
Wealth
4
Parents Education
11
Marriage
-6
-4
-2
10
0
2
4
Percentage Increase
6
8
10
12
Percentage of Households
Level of Education of the Head of Household
per Race and Family Structure
90
80
70
60
50
40
30
No-education
Grade School
High School
Terciary
College
Graduate
20
10
0
LAD
INDIG
Unions
LAD
INDIG
Married
LAD
INDIG
Separated
LAD
Divorce
Family Structure
Sources: ENEI (2004)
INDIG
LAD
INDIG LRACE INDIG
Widows
Single Parents
Children School Attendance by
Family Structure
Head Count
8000
7000
Indigenous
6000
Ladino
5000
4000
3000
2000
1000
0
Unions
Marriage Separated
Divorce
Family Structure
Sources: ENEI (2004)
Widows
Why is family structure
information relevant?

Increase savings, and these are needed for
investment

Decreases poverty and there is a large
portion of the population who live in poverty

Access to wealth facilitates social mobility

Relevant for the determination of human
capital

Broken families are a burden on public
finances

For policy design purposes
IV. Policy Recommendations

Continue to deepen the opening
of the economy while reinforce
institutions at both national and
local levels.
• Rule of law
• Transparency
• Property rights
• Education system
• Strengthening of the family structure
should be priority.



Expand access to economic
opportunity for low income
households.
Promote legislation that supports
families vis a vis other types of
living styles.
Promotion and protect healthy
families as a means to eradicate
poverty, especially the feminization
of poverty.


Reform the public and private
education system in Guatemala
to improve the coverage and
quality of educational services.
The government can assist lower
income families to choose among
these alternatives through a
voucher system or another
demand-oriented financial
mechanism.


Improve efficiency in the use of
government funds now allocated
to population
Redirect the present efforts
towards population control and
sexual education programs

Develop labor legislation that
facilitates and provides
incentives for the harmonization
of family life and professional
activity for all family members.
Conclusions



Economic Development is an
outcome of more than economic
processes.
It is an outcome of economic, social,
and political processes.
To attain it, opportunities need to be
promoted, empowerment at all levels
facilitated, and stability ensured.
Conclusions

Neo-Classical Model is supported in Guatemala.

The openness of the economy has been positive for economic
growth.

Experience rather than education is significant for economic
growth.

There is evidence for lack of efficiency in the education system.

Rate of growth of population is not significant for economic growth.
Fertility rate is significant and positive.

Family structure is relevant for wealth. This happens to be the case
after other characteristics are controlled by.