Paving the Way to Sustained Growth and Prosperity in Central America, Panama, and the Dominican Republic

Abstract: Accelerating economic growth in Central America, Panama and the Dominican Republic (CAPDR) remains an elusive task. While the region performed relatively well in the post-global financial crisis period, over the last five years obstacles to growth have become more evident and new challenges have emerged. In response, the region has strengthened macro-financial frameworks but more progress will be required to pave the way to sustained growth and prosperity. This book considers the structural factors underlying the region's growth outlook and assesses its macroeconomic and financial challenges to help shape the policy agenda going forward. The book first identifies the structural determinants of growth in the region related to: capital formation; employment; demographic factors, including immigration; productivity; and violence. It then highlights the importance of creating fiscal space through the design and implementation of fiscal rules and mechanisms to increase accountability (better quality of public spending, adequate policies to reduce income inequality and sustainable retirement plans). Finally, it presents recent evidence on the importance of a supportive financial sector for growth (including through financial inclusion and development). Cover Contents FOREWORD CONTRIBUTORS 1 Building a Foundation for Sustained Growth PART I: THE FOUNDATIONS OF GROWTH 2 Policy Imperatives for Raising Potential Output Growth 3 Female Labor Force participation 4 Migration and Remittances 5 Trade Integration: Taking Stock 6 Crime and Punishment in Central America PART II: FISCAL POLICY CHALLENGES TO GROWTH 7 Benchmarking Social Spending in Central America 8 The Long-Term Fiscal Costs of Population Aging 9 Fiscal Policy Reforms and Inequality: The Cases of Honduras, Guatemala and Dominican Republic 10 Recent Experiences with Fiscal Responsibility Frameworks PART III: MONETARY AND FINANCIAL SECTOR POLICIES TOSUPPORT GROWTH 11 Monetary Transmission: Effectiveness and Policy Implications 12 Financial Development and Inclusion 13 Safeguarding Financial Stability: The Role of Macroprudential Policy 14 The Credit Cycle Over the past three decades, Central America, Panama, and the Dominican Republic have experienced sustained economic transformation. The book aims to foster policy dialogue and contribute to the efforts to address the region's unique challenges.