Towards a Sustainable and Efficient State The Development ...

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Diagnosing the Binding Constraintson Economic Growth11.1 IntroductionBelize’s long-term growth performance has been comparatively good. 1 It is not clear what comparatorgroup is relevant, given Belize’s status as both a Caribbean and a Central American country. Comparedwith its Central American counterparts, Belize has been a growth star. In 1960, it was the secondpoorestcountry in the region; now it is among the “top tier” countries, with gross domestic product(GDP) per capita (Figure 1.1) near that of Costa Rica and Panama. Moreover, much of this growth wasachieved after independence. Among its Caribbean peers, however, Belize’s performance has been average,and it has not been able to close the gap with the better-performing economies in the region. Andsince 2004, economic growth has been sluggish, barely above the rate of population growth, implyingthat reactivating economic growth is a central development challenge for the country.Figure 1.1. GDP per Capita(logs, 2000 US$)98.587.576.565.551110.5109.598.587.576.56196019631966196919721975197819811984198719901993199619992002200519601962196419661968197019721974197619781980198219841986198819901992199419961998200020022004BLZNICCRIPANGTMSLVHNDBLZATGBHSBRBDMAVCTGRDDOMLCAJAMSource: World Bank, World Development Indicators.Note: ATG = Antigua and Barbuda, BEL = Belize, BHS = The Bahamas, BRB = Barbados, CRI = Costa Rica, DMA = Dominica,DOM = Dominican Republic, GRD = Grenada, GTM = Guatemala, HND = Honduras, JAM = Jamaica, LCA = St. Lucia, NIC =Nicaragua, PAN = Panama, SLV = El Salvador, VCT = St. Vincent and the Grenadines.1The authors would like to thank the staff of the Belize Country Office for their assistance in the fact-finding mission to Belize onSeptember 24–26, 2007, as well as all the government and private sector officials who were kind enough to share their time and offertheir insights during that mission. They also thank Dougal Martin and Matthew Shearer for their participation in the mission, andRodrigo Wagner for assistance in data collection and analysis.3
chapter 1Diagnosing the Binding Constraints on Economic Growth1.2 The Growth DiagnosticsMethodologyThe Growth Diagnostics Methodology (GDM)offers policymakers a guide to policymaking thatdiffers from traditional approaches to economicgrowth. Traditional approaches, characterized as“kitchen sink” or “laundry list” approaches, suggestan indiscriminate, across-the-board effort toreform policy. However, given that governmentshave limited political capital and administrativecapacity, long lists of reforms and needed actionsare not helpful. Moreover, attempting to solve allproblems simultaneously may cause governmentsto dissipate their efforts resolving problems thatactually turn out to have little impact on growth.The GDM argues that it makes sense to firstidentify the factor or factors that are most restrictiveto economic growth and then concentratepublic policy efforts on resolving that restriction,providing policymakers with the “biggest bangfor the buck.”A second characteristic of the GDM is that it providescountry-specific diagnoses. In contrast to thetraditional approach of basing recommendationson policies that have been found to be conducive togrowth in “the average country,” the GDM positsthat the binding constraint on growth varies fromcountry to country and over time.Figure 1.2 illustrates in a very intuitive way oneof the fundamental ideas behind the GDM:factors that may contribute to the growth of aneconomy are not necessarily perfect substitutes.Panel A of the figure presents a world in whichgrowth-supporting factors (represented by thehorizontal planks in the barrel) are perfect substitutes.Which of all these factors that contributeto growth should be the focus of public policies?If the world is like the barrel in panel A, the questionis irrelevant. The capacity of the barrel (oreconomic growth) is simply the sum of the heightof all the horizontal planks and will increase nomatter which of the planks of public policy areimproved. Policy improvements in any of theareas—or all of them at the same time—willbring similar results in terms of economic growth.However, in the real world, the different elementsthat contribute to growth are not perfect substitutes.If the growth of a plant is constrained by alack of nutrients, adding more sun or more waterwill not compensate for the lack of nutrients andboost its growth. Consequently, it is important tobe able to identify which constraints on growthare most binding.The barrel in panel B of the figure presents a differentworld. In this case, how much the barrelwill hold is determined by the shortest plank (inthe example of this figure, the shortest plank isFigure 1.2. A Comparison of Conceptual Approaches to Economic GrowthA. The kitchen sink approachB. The growth constraints approachFinanceLow TaxesHuman CapitalInfrastructureMacro StabilityLow Social ConflictMacro StabilityInfrastructureHuman CapitalLow TaxesFinanceLow Social ConflictSource: Hausmann, Klinger, and Wagner (2008). © Rodrigo Wagner, 2006.4
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Page 8: AcknowledgmentsTowards a Sustainabl
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Page 22 and 23: Figure 1.11. Real Lending Rates in
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chapter 3Challenges in the Financia
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Trade Sector: Exporting for Growth4
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European Union consist mainly of ba
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Figure 4.4. Cumulative Cost Curve o
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Because Belize has a very small per
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4.3 Trade Policy Framework4.3.1 Bel
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Many of Belize’s top product expo
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Physical infrastructure limitations
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market diversification, particularl
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ReferencesBarrow and Williams, Atto
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Infrastructure: Current Situationan
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Already inconsistent and variable,
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5.2.2 Water and SanitationBelize ha
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Box 5.1 The Public Utilities Commis
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Central American Electrical Integra
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5.3 Policy OptionsThe linkages betw
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Figure 5.5. Public Investment and F
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ment Department could contract smal
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Tourism: Achieving Balancefor Susta
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624,000 in 2007, or approximately 7
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sociation, Belize National Tour Ope
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Belize’s diverse cultural experie
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egulatory framework in which the
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ReferencesBelize Tourism Board. 200
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chapter 7Agricultural Sector: Asses
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The Challenges of Managingthe Oil S
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Figure 8.2. Oil production (Continu
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Oil production depends on other fac
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of the oil tax regime. As this chap
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acked up by empirical evidence (see
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8.4 Local Impacts of Oil Activity8.
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●●●●A consequence of such l
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ReferencesArbelaez, M. A. 2008. “
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Part IIIEnvironmentalSustainability
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Figure 9.2. Wind Hazard MapFigure 9
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Table 9.1. Natural Disasters, 1931-
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chapter 9Integrated Disaster Risk M
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chapter 9and resource monitoring; L
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Towards EnvironmentallySustainable
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and currently, the gross value adde
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Figure 10.3. Renewable Internal Fre
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For reasons that are unclear, the c
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to a more normal level since 2006.
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Table 10.2. Recent Developments in
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Figure 10.6. Protected Areas, 2006(
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tection, up to 90 percent of the fo
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offering incentives for developing
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vironmental impact in the country.
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Part IVSocialDevelopment189
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chapter 11Protecting the Poor and V
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A Health Sector in Transition1212.1
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Stann Creek, and Toledo Districts,
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With a ratio of 1.2 hospital beds p
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veillance, monitoring, and control
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Table 12.6. Distribution of Health
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of those in the highest consumption
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eceiving the best care possible to
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12.5.4 Strengthen Education andPrev
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Appendix. (continued)Budget categor
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ReferencesArcia, G. 2009. “Belize
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chapter 13Education Sector: Analysi
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Indigenous Peoples: Cross-CuttingCo
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Table 14.1. Garifuna and Maya Popul
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the PAR does include some data disa
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Statistics provided in the agenda o
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Secondary EducationAs illustrated i
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In his decision, Chief Justice Abdu
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Box 14.1 Key Indigenous Organizatio
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It is important to note that the Ch
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of disaggregated data makes it diff
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Palacio, J. O. 2001. “Coastal Tra
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chapter 15The Growing Threat to Cit
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