Post on 24-Dec-2015
Determinants of Determinants of Economic Growth: Economic Growth:
The Case of GuatemalaThe Case of Guatemala
Maria Sophia AguirreMaria Sophia Aguirre
Department of EconomicsDepartment of Economics
The Catholic University of AmericaThe Catholic University of America
Washington, DCWashington, DC
FADEPFADEP
Guatemala, GuatemalaGuatemala, Guatemala
October 11, 2007October 11, 2007
Purpose of the StudyPurpose of the Study To understand the relevance of population and To understand the relevance of population and
family to the economic growth process in family to the economic growth process in Guatemala.Guatemala.
To investigate how the family engages in the To investigate how the family engages in the process of economic growth.process of economic growth.
To empirically identify what model of economic To empirically identify what model of economic growth best fits the Guatemalan reality. growth best fits the Guatemalan reality.
To facilitate and strengthen the present and To facilitate and strengthen the present and
future population and family policy design and future population and family policy design and implementation in Guatemala.implementation in Guatemala.
Data Used and FrameworkData Used and Framework Three databasesThree databases
• Macroeconomic Variables compiled from 1950-2006: Macroeconomic Variables compiled from 1950-2006: yearly. yearly.
• ENEI 2004 and Census of 2002: by “ENEI 2004 and Census of 2002: by “lugar pobladolugar poblado.”.”
Framework Framework • Test of Economic Growth TheoryTest of Economic Growth Theory
• Other explanatory variables have been added as Other explanatory variables have been added as fitting. fitting.
• Analysis of Family Dynamics on wealth, income and Analysis of Family Dynamics on wealth, income and human capital.human capital.
There is a positive correlation between human capital, infrastructure and economic growthhealthy institutions and economic developmenthealth and income per capita
These positive correlations reflect an essential causal link running from human capital tohealthy institutions (social capital) infrastructure and technology
Life expectancy is a significant predictor of economic growth
We know from economic analysis that in economic development
Role of the Family in the EconomyRole of the Family in the Economy
Basic Basic ActivitiesActivities
Means UsedMeans UsedRole of the Role of the
FamilyFamilyPurposePurpose
ProductionProduction ResourcesResources Human CapitalHuman Capital Basic NeedsBasic Needs
ExchangeExchange MarketMarketHuman, Moral, Human, Moral, Social CapitalSocial Capital
ProfitProfit
ConsumptionConsumptionOptimization and Optimization and
DistributionDistributionAppropriate Appropriate distributiondistribution
WellbeingWellbeing
(welfare)(welfare)
Economic Theories of GrowthEconomic Theories of Growth Neo-Classical TheoryNeo-Classical Theory
Embraces Malthus’s inverse relationship between Embraces Malthus’s inverse relationship between population growth and real growth but acknowledges the population growth and real growth but acknowledges the key role of investment and thus savings in the process of key role of investment and thus savings in the process of growth.growth.
Human Capital TheoryHuman Capital Theory Human capital is an important source of economic Human capital is an important source of economic
development that depends on advances in technological development that depends on advances in technological and scientific knowledge. Increasing returns to scale.and scientific knowledge. Increasing returns to scale.
MalthusianMalthusian• Inverse Relationship between population and Inverse Relationship between population and
consumption.consumption.
Neo-Malthusian Theory: Ehrlich and HardinNeo-Malthusian Theory: Ehrlich and Hardin• Population depletes resources and damages the Population depletes resources and damages the
environment.environment.
Environmental Health, Welfare and Living Conditions Environmental Health, Welfare and Living Conditions in Guatemala, 2004in Guatemala, 2004
IndicatorIndicator % access% access
House Connection: waterHouse Connection: water 89/ 9989/ 99
House Connection: sewerageHouse Connection: sewerage 59/ 9959/ 99
House Connection: electricity (rural-urban)House Connection: electricity (rural-urban) 50-62 / 10050-62 / 100
Water consumption (liter per person)Water consumption (liter per person) 50/100 / 60050/100 / 600
Improved Water (urban-rural)Improved Water (urban-rural) 88/98 / 10088/98 / 100
Improved SanitationImproved Sanitation 90/10090/100
Access to Basic Essential Drugs Access to Basic Essential Drugs 85-90/ 9185-90/ 91
ImmunizationImmunization 92/10092/100
Under-five mortality (per 1000) Under-five mortality (per 1000) 49/649/6
Life Expectancy Life Expectancy 65/8565/85
Public Expenditures on Health (%GDP)Public Expenditures on Health (%GDP) 5.7 / 6.25.7 / 6.2
Paved RoadsPaved Roads 87/9487/94
Telephones Mainlines (per 1000)Telephones Mainlines (per 1000) 77/59777/597
Cellular Subscribers (Per 1000)Cellular Subscribers (Per 1000) 165/ 605165/ 605
LiteracyLiteracy 69.1/10069.1/100
Sources: Human Development Report, 2005 and Millennium Development Goal Indicators, 2005.
Leading Causes of Death and Leading Causes of Death and Health Services in GuatemalaHealth Services in Guatemala
Adults
Total Non-communicable diseases (per 100 000 population) 562.0
Maternal mortality ratio (per 100 000 live births) 240
Cardiovascular diseases (per 100 000 population) 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)
21
Tuberculosis (109 infected) (per 100 000 population) 13.1
Children (% of death among children)
Neonatal causes rate 37.3
Other causes rate (54.2% of children are undernourished in rural 54.2% of children are undernourished in rural areas. 32% in urban areas.)areas. 32% in urban areas.)
29.8
Pneumonia rate 15.0
Diarrhea diseases rate (58% access dehydration therapy)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 Poor health is highly correlated with low levels of education and povertylow levels of education and poverty
7.512
64.465.3
0
10
20
30
40
50
60
70
Lowestwealthquintile
Highestwealthquintile
Lowesteducation
level
Highesteducation
level
Pre
vale
nce o
f C
hil
d D
eath
(%
)
Sources: Care Health Indicators for Guatemala
Families face serious health and poverty problems
• Lack of income and assets to attain basic needs:Human assetsNatural assetsPhysical assetsFinancial assetsSocial assetsAging security
• Vulnerability to adverse shocks are linked to an inability to cope with them
I. Aggregated Level: ModelsI. Aggregated Level: Models The openness of the economy: +The openness of the economy: +
The Neo-Classical model seems to The Neo-Classical model seems to perform best.perform best.
• Investment and Technology: +Investment and Technology: +• Population Growth: 0Population Growth: 0• Domestic Research and Development: +Domestic Research and Development: +• Foreign Research and Development: 0Foreign Research and Development: 0• Foreign Technology: +Foreign Technology: +
Formal and Total Real GDPFormal and Total Real GDP 1950-2006 1950-2006
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
YEAR
MIL
LIO
N O
F Q
UE
TZ
AL
ES
REAL GDP
TOTAL REAL GDP
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)
Population and GDP Per CapitaPopulation and GDP Per Capita1950-20061950-2006
0
2
4
6
8
10
12
14
195019511952195319541955195619571958195919601961196219631964196519661967196819691970197119721973197419751976197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006
Years
To
tal
Po
pu
lati
on
(M
illi
on
s)
0
50
100
150
200
250
300
350
400
450
500
Rea
l G
DP
per
Cap
ita
POPULATION
Real Total GDP Per Capita
Speed of Population AgingNumber of years for % of population aged 65 and over to rise from 7% to 14%
11585
7369
6553
474545
2641
2727
25242323222120
FranceSweden
AustraliaUnited
CanadaHungary
PolandUnitedSpainJapan
AzerbaijanChina
SingaporeChile
JamaicaSri Lanka
TunisiaThailand
BrazilColombia
Source: US Census Bureau, 2000
Speed of Aging PopulationSpeed of Aging Population1982-20061982-2006
62
65
6161
60
5762
51
5248
52
59
59646464
646464
13074
83
69 73
59
0 20 40 60 80 100 120 140
1982
1985
1988
1991
1994
1997
2000
2003
2006
Yea
r
Number of Years
Sources: Raw data obtained from INE.
Estimation of the Aging Population Path Estimation of the Aging Population Path Given Current Population TrendsGiven Current Population Trends
(Base year: 2006)(Base year: 2006)
0
5
10
15
20
25
30
1 9 17 25 33 41 49 57 65 73 81 89 97 105 113 121 129 137 145 153 161
Number of Years
Per
cen
tag
es
Estimation of Gross Domestic Product Estimation of Gross Domestic Product Per Per CapitaCapita Under Various Assumptions Under Various Assumptions
(Base year: 2006)(Base year: 2006)
0
0.05
0.1
0.15
0.2
0.25
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55
Number of Years
Log
GD
P P
er C
apit
a
GDPPC59
GDPPC74
GDPPCCT
Sources: Author EstimationsGDPPCCT 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.
Wealth Composite Distribution Wealth Composite Distribution for Head of Households (2004)for Head of Households (2004)
0
2
4
6
8
10
12
CO
MP
OS
ITE
1%
8% 60%
13%
10%
8%
Sources: ENEI, 2004
Income Composite or NBI Distribution Income Composite or NBI Distribution for Head of Households,for Head of Households, 2004 2004
0
20
40
60
80
100
120
140
160
180
CO
MP
OS
ITE
0.04%
29%
1%
10%
59.96%
Sources: ENEI, 2004.
Accentuated disparity in both income and Accentuated disparity in both income and wealth distributionwealth distribution• Access to credit: Access to credit: ++• Years of education: Years of education: ++• Remittances: Remittances: ++• Per capitaPer capita income: income: + on Inequality+ on Inequality• Openness of the economy: Openness of the economy: + on Inequality+ on Inequality• Political Stability/Rule of Law: Political Stability/Rule of Law: ++
Human Capital Human Capital • Education (measured as average years of education): Education (measured as average years of education):
00• Experience and stock of capital: Experience and stock of capital: + + • Increasing returns to scale on human capital: Increasing returns to scale on human capital: ++• Average years of education: Average years of education: 3 3 • Inefficiencies found in the social return of education.Inefficiencies found in the social return of education.
Marginal Benefit and Cost of Marginal Benefit and Cost of Schooling, 1950-2006Schooling, 1950-2006
0.0020.0040.00
60.0080.00
100.00120.00140.00
160.00180.00200.00
Years
Que
tzal
es
MBS
MCS
Sources: Own Econometric Estimation
In SummaryIn SummaryThe Empirical EvidenceThe Empirical Evidence
Supports openness in the economy.Supports openness in the economy.
Emphasizes the importance of investment and Emphasizes the importance of investment and technology as well as education for growth.technology as well as education for growth.
Indicates increasing returns to scale to Indicates increasing returns to scale to human capitalhuman capital
Lends no support for policies directed Lends no support for policies directed towards population control. towards population control.
III.III. Disaggregated LevelDisaggregated Level Wealth Wealth
Household Characteristics Household Characteristics Contribution to WealthContribution to Wealth
(% Increase/Decrease)(% Increase/Decrease)
Sources: Own Econometric Estimation
29
26
25
6.8
6.1
2.4
-18
7.5
-30 -20 -10 0 10 20 30 40
Marriage
Urban vs. rural
Remittances
Higher level of education
Number of children
Age of the household’s head
Type of occupation
Sex of head of household
Ho
us
eh
old
Ch
ara
cte
ris
tcis
Increase/Decrease of Welath
Contribution of Marriage to WealthContribution of Marriage to Wealth(% Increase)(% Increase)
2924
28
0
5
10
15
20
25
30
35
Total Ladino Indigenous
Race
Incr
ease
d o
n W
elat
h (
%)
Sources: Own Econometric Estimation
Percentage of Head of Households that Percentage of Head of Households that Report Owning Property and Holding Report Owning Property and Holding
SavingsSavings
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
Unions Married Separated Divorced Widowed
Own Home
Hold Savings
Source: ENEI (2004)
RemittancesRemittances
The probability of receiving The probability of receiving remittances increases by 18.6% when remittances increases by 18.6% when it is headed by married women. it is headed by married women.
In other type of family structures it In other type of family structures it decreases by 2.7%. decreases by 2.7%.
III. Disaggregated Level: NBIIII. Disaggregated Level: NBI
Household Characteristics Household Characteristics Contribution to Income (NBI)Contribution to Income (NBI)
(% Increase/Decrease)(% Increase/Decrease)
2.9
1.2
0.6
0 0.5 1 1.5 2 2.5 3 3.5
Urban vs. rural
Higher level ofeducation
Married
Ho
su
eh
old
Ch
ara
cte
risti
cs
Number of times that Increases/Decreases
Source: ENEI (2004)
Level of Income (NBI) and Wealth of the Level of Income (NBI) and Wealth of the Head of Household by Family StructureHead of Household by Family Structure
8.95
13.84
5.51 5.48
0
2
4
6
8
10
12
14
16
MARRIED NOT MARRIED
CO
MP
OS
ITE
NBI
WEALTH35%lower
Source: ENEI (2004)
Average Wealth and Income Composite Average Wealth and Income Composite per Family Structure and Raceper Family Structure and Race
Sources: ENEI (2004)
15.0816.07
14.15 14.2615.84 17.92
5.855.605.945.555.50 5.10
14.22 12.55 13.20
15.14
5.715.275.31
12.28
5.39
10.97
5.47
4.78
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
Wealth Poverty Wealth Poverty Wealth Poverty Wealth Poverty Wealth Poverty Wealth Poverty
Unions Married Separated Divorce Widows Single Parents
Marital Structure
Ave
rag
e V
alu
e o
f C
om
po
site
Indigenous Ladinos
Impact of Marriage by RaceImpact of Marriage by Race
26
69
22
70
0
10
20
30
40
50
60
70
80
Wealth Income
Per
cen
tag
e In
crea
se
Ladino
Indigenous
Family Structure by RaceFamily Structure by Race
26
56
7 83
22
66
38
10
10
20
30
40
50
60
70
Unions Married Separated Divorce SingleParents
Family Structure
Per
cent
age
of H
ouse
hold
s
Indigenous
Ladino
Sources: ENEI (2004)
Human CapitalHuman Capital
Educational levels are affected by Educational levels are affected by family structure.family structure.
Attendance to school is higher Attendance to school is higher among married households than among married households than others. others.
It is also reinforced by remittances.It is also reinforced by remittances.
Factors Affecting Factors Affecting Child Schools AttendanceChild Schools Attendance
10
11
4
4
-5
8
-6 -4 -2 0 2 4 6 8 10 12
Marriage
Parents Education
Wealth
Income
Race: Indigenous
Area
Percentage Increase
Level of Education of the Head of Household Level of Education of the Head of Household
per Race and Family Structureper Race and Family Structure
0
10
20
30
40
50
60
70
80
90
LAD INDIG LAD INDIG LAD INDIG LAD INDIG LAD INDIG LRACE INDIG
Unions Married Separated Divorce Widows Single Parents
Family Structure
Per
cent
age
of H
ouse
hold
s
No-education Grade School High School
Terciary College Graduate
Sources: ENEI (2004)
Children School Attendance by Children School Attendance by Family StructureFamily Structure
0
1000
2000
3000
4000
5000
6000
7000
8000
Unions Marriage Separated Divorce Widows
Family Structure
Head
Co
un
t
Indigenous
Ladino
Sources: ENEI (2004)
Why is family structureWhy is family structure information relevant? information relevant?
Increase savings, and these are needed for Increase savings, and these are needed for investmentinvestment
Decreases poverty and there is a large Decreases poverty and there is a large portion of the population who live in portion of the population who live in povertypoverty
Access to wealth facilitates social mobilityAccess to wealth facilitates social mobility
Relevant for the determination of human Relevant for the determination of human capitalcapital
Broken families are a burden on public Broken families are a burden on public financesfinances
For policy design purposesFor policy design purposes
IV. Policy RecommendationsIV. Policy Recommendations Continue to deepen the opening Continue to deepen the opening
of the economy while reinforce of the economy while reinforce institutions at both national and institutions at both national and local levels. local levels. • Rule of lawRule of law• TransparencyTransparency• Property rightsProperty rights• Education systemEducation system• Strengthening of the family structure Strengthening of the family structure
should be priority.should be priority.
Expand access to economic Expand access to economic opportunity for low income opportunity for low income households.households.
Promote legislation that supports Promote legislation that supports families families vis a visvis a vis other types of other types of living styles. living styles.
Promotion and protect healthy Promotion and protect healthy families as a means to eradicate families as a means to eradicate poverty, especially the feminization poverty, especially the feminization of poverty.of poverty.
Reform the public and private Reform the public and private education system in Guatemala education system in Guatemala to improve the coverage and to improve the coverage and quality of educational services.quality of educational services.
The government can assist lower The government can assist lower income families to choose among income families to choose among these alternatives through a these alternatives through a voucher system or another voucher system or another demand-oriented financial demand-oriented financial mechanism. mechanism.
Improve efficiency in the use of Improve efficiency in the use of government funds now allocated government funds now allocated to populationto population
Redirect the present efforts Redirect the present efforts towards population control and towards population control and sexual education programssexual education programs
Develop labor legislation that Develop labor legislation that facilitates and provides facilitates and provides incentives for the harmonization incentives for the harmonization of family life and professional of family life and professional activity for all family members. activity for all family members.
ConclusionsConclusions
Economic Development is an Economic Development is an outcome of more than economic outcome of more than economic processes.processes.
It is an outcome of economic, social, It is an outcome of economic, social, and political processes.and political processes.
To attain it, opportunities need to be To attain it, opportunities need to be promoted, empowerment at all levels promoted, empowerment at all levels facilitated, and stability ensured.facilitated, and stability ensured.
ConclusionsConclusions Neo-Classical Model is supported in Guatemala.Neo-Classical Model is supported in Guatemala.
The openness of the economy has been positive for economic The openness of the economy has been positive for economic growth.growth.
Experience rather than education is significant for economic Experience rather than education is significant for economic growth.growth.
There is evidence for lack of efficiency in the education system.There is evidence for lack of efficiency in the education system.
Rate of growth of population is not significant for economic growth. Rate of growth of population is not significant for economic growth. Fertility rate is significant and positive. Fertility rate is significant and positive.
Family structure is relevant for wealth. This happens to be the case Family structure is relevant for wealth. This happens to be the case after other characteristics are controlled by.after other characteristics are controlled by.