Historically, Panama has enjoyed the benefits that bring its privileged geographical location. However, this advantage is not enough in order to achieve development. For this reason, it is important to consider the different possibilities this country has to reduce poverty and promote higher rates of growth.
This paper analyzes Panama’s growth strategy in light of the growth diagnostics methodology developed by Hausmann, Rodrick and Velasco (2004).
The article shows the following:
Panama’s economic structure
Panama’s growth using conventional techniques
Panama’s Investment Climate Survey
Panama’s problems that entail low social returns to investments, among others
The article concludes that Panama presents a clear market failure, in which the traditional economy is protected by tariffs that prevent other sectors’ development. At the same time, it states that the labor legislation is a huge impediment for the development of new business opportunities. Finally, it argues that electricity and transport costs restrict business growth.