Occasional Paper 257:
Economic Growth and Integration in Central America
June 2007
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Contents |
Foreword | |
Preface | |
I. | Overview |
Dominique Desruelle and Alfred Schipke | |
Recent Developments | |
Key Policy Issues | |
Integration and Policy Coordination | |
Moving Forward | |
References | |
II. | Growth Performance |
José Brambila Macías, Guy Meredith, and Ivanna Vladkova Hollar | |
Stylized Facts | |
Growth Accounting | |
Bottlenecks to Productivity Growth | |
Empirical Analysis | |
Conclusions | |
Appendix 2.1. Countries Included in the Sample | |
Appendix 2.2. Fit of the Regression Model for the Central American Countries | |
References | |
III . | Pension Reform |
Kevin Fletcher and Alfred Schipke | |
Basic Structures of Public Pension Systems | |
Comparison of Key Parameters | |
Special Regimes | |
Recent Reform Developments | |
Pension Reform and Development of Local Capital Markets | |
Reform Options | |
Conclusions | |
Appendix 3.1. Country-by-Country Descriptions of Recent Reforms | |
References | |
IV. | Assessing Sovereign Debt Structures |
André Faria and Guillermo Tolosa | |
Analysis of Sovereign Debt Structure in the Context of a Balance Sheet Approach | |
Sovereign Debt Across Countries and Over Time | |
Determinants of Debt Structure | |
Closer Look at Vulnerabilities | |
Conclusions | |
References | |
V. | Financial Sector Development: Public Debt Markets |
Hemant Shah | |
Financial Sector in Central America | |
Organization of Public Debt Management | |
Dual Sovereign Issuers: Government and the Central Bank | |
Primary Issuance of Public Debt | |
Secondary Markets | |
Investor Universe, and Regulation of Investments in Public Debt | |
The Challenge of Creating a Regional Market | |
Key Problems and Recommendations | |
Conclusions | |
VI. | Characterizing Monetary Policy |
Luis I. Jácome H. and Eric Parrado | |
Institutional Framework for Monetary Policy | |
A Snapshot of Monetary Policy Formulation and Execution | |
Empirical Regularities Supporting the Characterization of Monetary Policy | |
Conclusions | |
Appendix 6.1. Policy Reaction Function | |
References | |
Boxes | |
2.1. | Growth Accounting Framework |
4.1. | Measures of Currency Mismatch Risk |
Tables | |
1.1. | Central America: Real GDP Growth |
1.2. | Central America: Regional and Bilateral Free Trade Agreements |
2.1. | Central America: Long-Term Real GDP Growth by Country |
2.2. | Growth Accounting Across Regions, 1960-2003 |
2.3. | Ranking of Ease of Doing Business |
2.4. | Cross-Country Growth Regressions |
2.5. | Fixed-Effects Panel Regressions |
2.6. | Scores of Institutional Quality |
2.7. | Estimated Impact on Growth of Improving Institutions |
2A.1. | Actual and Predicted Growth, Cross-Sectional Regressions, 1995-2003 |
3.1. | Main Characteristics of Mandatory Public Old Age Pension Systems |
3.2. | Defined-Benefit Systems: Average and Minimum Old Age Pensions |
3.3. | Defined-Benefit Systems: Balances and Reserves, 2004 |
3.4. | Projected Population Aging |
3.5. | Defined-Benefit Systems: Real Internal Rates of Return on Contributions |
3.6. | Replacement Rates under Different Rates of Return in First-Pillar, Defined-Contribution Systems |
3.7. | Administrative Costs in Defined-Benefit Systems |
4.1. | Domestic Debt Share Determinants |
4.2. | Elasticity of Ratio of Debt to GDP vis-à-vis the Real Exchange Rate |
4.3. | Elasticity of the Sovereign's Leverage Ratio vis-à-vis the Real Exchange Rate |
4.4. | Ratio of Short-Term Debt to Reserves |
5.1. | Structure of Financial System |
5.2. | Securities Issued by the Ministry of Finance and Central Bank |
5.3. | Auction Mechanisms for Public Debt Securities |
5.4. | Secondary Trading of Fixed-Income Domestic Securities |
6.1. | Breakdown of Index of Legal Central Bank Independence: Central America versus South America and Mexico |
6.2. | Taxonomy of Monetary Policy Strategies |
6.3. | Volatilities of Selected Macroeconomic Variables, 2000-05 |
6.4. | Interest Rate Reaction Function of Central Banks, 1996-2005 |
6.5. | Exchange Rate Crawl Reaction Function, 1996-2005 |
6.6. | Central Banks' Money Reaction Function, 1996-2005 |
6A.1. | Main Provisions of Central Bank Legislation as of 2005 |
6A.2. | Main Features of Monetary Policy |
Figures | |
1.1. | Central America: Selected Macroeconomic Indicators |
2.1. | Poverty Rates, Nationally Defined Poverty Line |
2.2. | Central America: Long-Term Real GDP Growth |
2.3. | Real Per Capita GDP by Country |
2.4. | Central America: Growth Accounting |
2.5. | Central America: Per Capita GDP and Total Factor Productivity |
2.6. | Real Per Capita GDP and Total Factor Productivity by Country |
2.7. | Central America: Real Per Capita GDP |
2.8. | Trade Openness: Total Exports Plus Imports |
2.9. | Exports to the United States |
2.10. | Comparison of Institutional Ratings |
2A.1. | Growth Accounting, by Country |
3.1. | Pension Coverage: Number of Contributors as a Share of the Labor Force, 2003 |
3.2. | Contribution Rates for Mandatory Old Age, Disability, and Survivor Pensions |
3.3. | Standard Retirement Age and Life Expectancy at Age 60 |
4.1. | Composition of Sovereign Debt |
4.2. | Structure of External Debt, 2001-05 |
4.3. | Foreign Currency Debt |
4.4. | Short-Term Debt |
4.5. | Domestic Debt: Predicted and Actual |
4.6a. | Domestic Debt and Foreign Currency Debt Share |
4.6b. | Inflation History and Foreign Currency Debt |
4.7. | Short-Term Share and Total Debt |
4.8. | Sovereign Debt |
4.9. | Debt with Variable Interest Rate, 2005 |
4.10. | Volatility of Revenue Growth, 1990-2005 |
5.1. | Domestic Central Bank Debt/Domestic Government Debt, 2005 |
5.2. | Potential Debt Auctions Per Year |
5.3. | Actual Debt Auctions Per Year |
6.1. | Inflation in Central America and the Western Hemisphere |
6.2. | Inflation in Central America, the Western Hemisphere,and Industrialized Countries |
6.3. | Legal Central Bank Independence before and after Reform |
6.4. | Legal Central Bank Independence, All Latin America |
6.5. | Central Bank Reform and Inflation in Central America |
6.6. | Inflation and Legal Central Bank Independence in Latin America, 2000-03 |
6.7. | Inflation and Legal Central Bank Independence in Latin America, 2004-05 |