DDP 749. Edgar Robles. "Economic Growth in Central America: Evolution of Productivity in Manufacturing." February 2000. 68 pp. Central America Project Series

This paper analyzes sources of economic growth and productivity in Central America. Using growth accounting, it calculates Total Factor Productivity (TFP) for each of the five countries in the region and for industrial branches within each country. It is found that TFP and value added are highly correlated. A coherence analysis of the TFP series found important short- and long-run comovements between some pairs of countries. Industry-level data show that there are three sources of value added growth variability among two-digit SIC industrial branches: first, changes within the country, such as demand shocks and economic reforms; second, changes within the region, such as dynamic comparative advantages; and third, legal reforms. TFP growth is concentrated in a few branches, and there are winners and losers in the process of real cost reduction. Statistically, labor-intensive industries seemed not to have grown faster after the economies became more open in the mid-eighties. Probably this relationship does not exist because there are many distortions remaining in these economies.

Keywords: Central America, economic growth, growth accounting, total factor productivity

JEL Codes: O40, O47, O54

Edgar Robles is a professor in the Department of Economics, Universidad de Costa Rica, erobles@cariari.ucr.ac.cr

I would like to thank comments by Felipe Larraín, Gerardo Esquivel, Andrés Rodríguez and Joseph Stiglitz. Also, I am very grateful to my two research assistants, Rudy Corrales and Ricardo Madrigal