Guatemala: Selected Issues
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International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
07 Jun 2022
eISBN:
9798400213175
ISBN:
9798400213175
Language:
English
Keywords:
export complexity; NHM export; constraints Guatemala's exports development; export determinant; Guatemala's export concentration; Exports; Export performance; Infrastructure; Emerging and frontier financial markets; Service exports
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While favorably located close to the large North American market, Guatemala lags most other Central American countries in the level and complexity of its exports. This is a handicap to its economic development as exports growth is associated with higher productivity and GDP growth. This paper finds that underdevelopment in education, governance, and infrastructure substantially constraints Guatemala’s exports development and that realistic improvements in these policy areas could generate notable improvements in its exports per capita and complexity, bringing them up to levels like those in Costa Rica and East Asian Emerging Market (EAEM) countries.

Abstract

While favorably located close to the large North American market, Guatemala lags most other Central American countries in the level and complexity of its exports. This is a handicap to its economic development as exports growth is associated with higher productivity and GDP growth. This paper finds that underdevelopment in education, governance, and infrastructure substantially constraints Guatemala’s exports development and that realistic improvements in these policy areas could generate notable improvements in its exports per capita and complexity, bringing them up to levels like those in Costa Rica and East Asian Emerging Market (EAEM) countries.

Fostering Export Development in Guatemala1

While favorably located close to the large North American market, Guatemala lags most other Central American countries in the level and complexity of its exports. This is a handicap to its economic development as exports growth is associated with higher productivity and GDP growth. This paper finds that underdevelopment in education, governance, and infrastructure substantially constraints Guatemala’s exports development and that realistic improvements in these policy areas could generate notable improvements in its exports per capita and complexity, bringing them up to levels like those in Costa Rica and East Asian Emerging Market (EAEM) countries.

A. Introduction

1. Relative to its development level, Guatemala has a low export per capita ratio. Despite its favorable geographical location—close to the large North American market, access to both the Atlantic and Pacific Ocean basins—and Free Trade Agreements with key economies (for example, the US, Northern Triangle countries and Mexico), Guatemala has one of the lowest export per capita ratios in Latin America, a region that considerably lags other Emerging Market regions such as East Asia and Eastern Europe. Moreover, the level of export per capita is low relative to Guatemala’s income level. This suggests that non-geographic export determinants in Guatemala are weak, and this paper seeks to identify and quantify these possible weaknesses based on the existing literature on export determinants.

2. Guatemala’s key export industries have stagnated lately. Improvements in non-hydrocarbon/mineral (NHM) exports would benefit the economy at large, especially if driven by more complex exports (in the Hidalgo and Hausmann, 2009, sense) as those exports are usually related with higher productivity and GDP per capita growth. Indeed, export performance is typically key to raise output growth, as inferred, for example, from the strong cross-country association between exports and GDP (see Figure 1). Rapid export growth can boost productivity growth both through learning-by-doing and economies of scale. In the case of Guatemala, both below-world-average exports per capita and GDP per capita have been observed in recent years. And while experiencing significant export growth in recent decades, Guatemala’s growth and exports per capita remain considerably below the world average. Moreover, exports of goods and services have declined as a share of GDP in the last twenty years (Figure 1), reflecting a decline in the share of GDP of goods exports, while the share of service exports has broadly remained stable. This decline is consistent with the low contribution of total factor productivity over the last twenty years (IMF Country Report 16/282). Moreover, an increasing share of NHM exports would represent a more stable source of export growth for Guatemala, less dependent on their availability and international commodity prices.

Figure 1.
Figure 1.

Guatemala: Export Performance

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

B. On the Drivers of Recent Export Developments

3. The rest of the paper looks at the drivers of the recent export growth performance, focusing on different categories of NHM exports in Guatemala—notably those of higher complexity—and comparing them against similar countries. The paper then assesses the country’s performance with respect to policies supportive of the development of NHM and complex exports to identify areas that can be strengthened to accelerate these exports. Finally, the paper estimates the potential payoffs from reforms in the identified areas.

4. The decline in exports as a share of GDP in Guatemala reflects declines across most sectors (Figure 2). In the case of goods exports, the largest fall was seen in manufacturing exports, which fell by about 5 percentage points of GDP during the last decade, while extractive industries’ exports declined by about 1–2 percent of GDP as a result of a significant contraction in petroleum exports following the 2014–15 oil price slump. Agriculture exports fluctuated around 4–6 percent of GDP throughout the last decade. Services exports as percent of GDP also declined with contractions in travel services accounting for most of the overall decline.

Figure 2.
Figure 2.

Guatemala: Export Performance by Sector

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

5. Although Guatemala has a highly diversified economy relative to its comparators, its level of NHM exports is much lower2. Guatemala’s export concentration (diversification) is very low (high) as indicated by its Herfindahl-Hirschman index (see Figure 3, upper left chart). Nonetheless, this high diversification is not the result of successful export development, as Guatemala’s NHM exports are quite below comparators. In other words, Guatemala’s exports basket is diversified on many sectors, but all of them are relatively small and sum up to low total exports per capita. This is consistent with the prevalence of small and typically informal firms in the economy.

Figure 3.
Figure 3.

Guatemala: Guatemala and Comparators: Export Diversification and Per Capita Levels

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

6. Manufacturing and services exports per capita are remarkably below comparators. A particularly interesting comparator is Costa Rica, which is geographically further away from the U.S. but produces multiple times more manufacturing and services per capita than Guatemala. Additionally, even though Guatemala has a similarly attractive natural landscape as Costa Rica and precious Mayan sites across its territory it attracts only a fraction of tourism per capita as Costa Rica.

7. Crucially, Guatemala has also low complex exports per capita, and this ratio has stagnated over the last few decades. Remarkably, unlike other developing countries, Guatemala’s low export complexity occurs despite an export basket that is not dominated by hydrocarbon or mineral exports (which have low complexity). For instance, some resource abundant countries like Chile have a low Economic Complexity Index (ECI)3 due to the large share of natural resource exports even though they export large amounts of complex products. Guatemala, on the other hand, does not export much of natural resources but has a low ECI because it exports a low amount of complex products. This despite the rapidly growing manufacturing exports in 1990–2010, suggesting that the dynamic manufactured exports of Guatemala were not centered on very complex products. Noteworthy also, manufacturing exports per capita stagnated and even declined during the last decade.

8. When considering the ten highest complex exports, Guatemala has a much lower average Product Complexity Index (PCI) than comparators Costa Rica and Mexico (0.47 compared to 0.89 and 0.92, respectively). Guatemala’s most complex export (Table 1), which shows the ten most complex exports) is Alcohol (PCI of 1.48) and Heating and Cooling equipment (PCI of 1.26), whereas Costa Rica’s are Optical elements (PCI of 2.21) and Mexico’s are Measuring, Controlling, and Scientific Instruments (PCI of 2.01).

Figure 4.
Figure 4.

Guatemala: Guatemala and Comparators: Export Complexity

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Table 1.

Guatemala: Complex Exports in Selected Countries

article image
Source: UNCTAD Comtrade

Complex exports are those with Product complexity index (PCI) above zero. The PCI in 2-D19 had mean zero and standard deviation one.

C. How to Foster Export Development and Complexity

9. To address the low and stagnant level of Guatemala’s per capita exports, notably its low level of complexity, it is important to identify reforms that cannot only reverse such performance but accelerate it. To do so this section examines various factors that can play a role.

Determinants of Export Development

10. The economic literature has found that location and “horizontal policies”4 are key factors in explaining export development. Countries that are closer to larger economies and have better economy wide policies (such as better education and governance) tend to have higher and more complex exports. Whether industrial policies5 boost export growth is not yet clear. 6

11. Distance to market remains an important export determinant. In line with the empirical international trade literature, Salinas (2021) finds that distance to international markets and standard gravity equation variables are significantly associated to export categories that can diversify the typically commodity-dependent export baskets of developing countries, such as NHM, manufacturing, and complex exports (see Table A.2). This is corroborated by empirical studies in the Global Value Chain (GVC) literature (for example, Cadestin and others, 2016, and Raei and others, 2019), which conclude that gravity equation variables are key determinants of GVC participation. In fact, Salinas (2021) finds that a Proximity to Markets (PM) index measuring a country’s geographic proximity to international markets on its own explains about a quarter of the variation in NHM, manufacturing, and crucially complex exports per capita. As expected, in the absence of significant transport costs, the PM index explains less of the variation of services.

Text Table 1.

Guatemala: OLS Regressions of Exports per Capita on Proximity to Markets

article image
Source: Salinas (2021) Note: P-values below coefficients. Period 2000–2017. Proximity to Markets is the sum of GDP of trading partners weighted by the inverse of distance to the trading partner. Yea rand country fixed effects included.

12. In addition, the empirical literature has identified several determinants of export diversification and complexity that can help offset remoteness. Ding and Hadzi-Vaskov, (2017); Giri and others (2019); Salinas (2021) statistically associate export diversification and export complexity with higher educational attainment, stronger governance and institutional development, lower barriers to trade, and higher physical infrastructure development.7 By adding these policy variables to PM, Salinas (2021) explains up to 80–90 percent of cross-country variation in NHM and complex exports. The point-estimates for the impact of changes in policy variables on NHM, manufacturing, and complex exports are substantial. Increasing schooling attainment by one standard deviation, more than doubles these exports; enhancing governance by one standard deviation increases them by about 30–40 percent; improving infrastructure by one standard deviation increases them by about a third; and cutting tariffs from 15 to 5 percent increases them by almost half.

Guatemala’s Export Determinants

13. Location is one of Guatemala’s main assets for export development. In fact, an index of Proximity to Markets (PM) that aggregates the size of its trading partners divided by their distance to Guatemala, is higher than the PM index of all its comparators shown in the charts.8 This privileged location suggests that Guatemala’s relative weakness on export development must be related in part to some of its horizontal policies.

uA001fig01

Proximity to Markets in 2018

(US$/mn)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: UN Comtrade and staff estimates.Note: Proximity to Markets is the sum of GDP of partner countries weighted by their distance to the country, Acronyms of countries are ISO3. For subregions: CAM-Central America and Mexico; EAEM-East Asia Emerging Markets. Regional subgroupings described in Table A.1.

14. Guatemala’s horizontal policy areas are important determinants of weak export development. The rest of this section examines horizontal policy areas such as governance, education, infrastructure, and trade policy openness. Other factors such as labor costs9 and Guatemalan specific factors such as crime are also examined. All these areas have been previously identified as being key to lift productivity and output growth (IMF Country Report 16/282 and 18/155). A glance at broad measures of education, governance, infrastructure, and trade policy openness, highlights relative weaknesses in the first three export determinants. Governance is very low compared with other Emerging Market subregions, including regions in Latin America and the Caribbean. Moreover, Guatemala’s Learning Adjusted Years of Schooling, a measure the combines access to and quality of education, is below most comparators including the average for Caribbean countries and is especially low relative to Costa Rica and the EAEM region. Learning Adjusted Years of Schooling are low in Guatemala because of both low expected years of school and low harmonized test scores.

uA001fig02

Exports Determinants in Guatemala and Comparators

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Human Capita Index (World Bank).Note: Country acronyms are ISO3. CAM-Central America and Mexico; EAEM-East Asia Emerging Markets. Regional subgroupings described in Table A.1.

15. Empirical estimates of the positive impact of stronger education on export development suggests Guatemala’s relative weakness in education is a major drawback. Based on Salinas (2021) estimates that an increase in the United Nations Education Index of one standard deviation across all sample countries is associated with an increase of 150 percent in NHM exports. Those estimates suggest that matching Costa Rica’s Education Index could increase Guatemala’s complex exports by about 230 percent.

16. Governance is another significant contributor to export weakness. Guatemala’s weakness on governance is not only significant relative to Caribbean (CAR) and Southern Cone Countries (SCC), but also to the nearby Central America and Mexico (CAM) region, which has notably high crime and often experience corruption scandals. Among governance-related aspects in the World Bank’s Worldwide Governance Indicators, Guatemala is weaker in Political Stability and Absence of Violence, Government Effectiveness, Rule of Law, and Control of Corruption.10

uA001fig03

Governance Components Guatemala and Comparators

(Index – 2 to 2)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Worldwide Govermance Indicators(World Bank).Note: Country acronyms are ISO3. For subregions: CAM-Central America and Mexico; EAEM-East Asia Emerging Markets. Regional subgroupings described in Table A.1.

17. The significant weakness on Absence of Violence is related to Guatemala’s very high crime as measured by the intentional homicide rate. IADB cross-country statistical analysis suggests that crime-related costs in Guatemala could be up to 3 percent of GDP, likely eroding its cost competitiveness (Jaitman and Torre, 2017).11 Scatter plots in Panel Figure A.1. show that homicide rates are negatively related to non-commodity exports. The estimated coefficient of the homicide rate in panel regression analysis in Table A.2. implies that if Guatemala were to reduce this rate from its current 22.5 homicide per 100,000 people to the world average of 7, it could be associated with an increase in NHM export complexity of 25 percent. Auspiciously, Guatemala has already substantially reduced the homicide rate from 45 per 100,000 people in 2009.

uA001fig04

Intentional Homicides in 2018

(Per 100 thousand persons)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: World Development Indicators(World Bank).Note: Acronyms for countries are ISO3. For subregions: CAM-Central America and Mexico; EAEM-East Asia Emerging Markets. Regional groupings described in Table A.1.

18. Guatemala could realistically aim to strengthen its governance to match other middle-income countries like those of the Caribbean with a substantial impact on exports. Based on estimated payoffs of governance changes on exports in Salinas (2021), if Guatemala were able to bring up its governance standards to CAR levels it could increase its complex exports by 70 percent. IMF Country Report 18/155 also finds that weak governance weights down on growth and proposes several reform avenues to strengthen governance, including through anti-corruption measures in the fiscal, law enforcement, market regulation, financial sector oversight, and public order and enforcement domains.12

19. Guatemala also has very weak infrastructure development relative to competitors especially compared to East Asian Emerging Markets. Guatemala’s weak infrastructure seems to be acute on its roads, railroads, ports, and airports infrastructure. The weakness in road infrastructure is particularly detrimental to exports of agricultural goods as most of them are produced in the south and require considerably transportation to reach ports. Based on estimates from Salinas (2021), NHM exports per capita in Guatemala would increase by 45 percent if its infrastructure were to match that of EAEMs.

uA001fig05

Infrastructure Components Guatemala and Comparators

(index 0 to 7)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Global Competitiveness Report (World Economic Forum).Note: Country acronyms are ISO3. For subregions: CAM-Central America and Mexico; EAEM-East Asia Emerging Markets. Regional groupings described in Table A.1. Values are averages of years 2016-2018

20. Weak logistics exacerbate Guatemala’s infrastructure weakness on export development. The World Bank’s Logistics Performance Index points weaknesses not only relative to East Asian Emerging Markets but also relative to peers in Central America. In this index, Guatemala ranks unfavorably to all comparators in quality of Customs, Logistics Services Quality, Tracking and Tracing, and Ease of International Shipments.

uA001fig06

Overall Logistics

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Logistics Performance Index(World Bank).

21. While the quality of electricity supply is apparently better than in comparators13, electricity costs for households are notoriously high. The average electricity cost to firms in Guatemala at US$0.16 per kWh is not significantly different from the cost in other countries near the North American market, but it is considerably higher than for EAEM countries. Notably, the electricity costs faced by Guatemalan households exceed those in its comparators and rank 15th highest in the world in 2021. Increasing living costs for the labor force has an important indirect effect on firms’ costs as households increase their reservation wage further eroding export competitiveness.

uA001fig07

Electricity Cost for Businesses in 2021

(kWh, U.S. Dollar)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: GlobalPetrolPrices.comNote: Acronyms for countries are ISO3. For subregions: CAM-Central America Subregional groupings described in Table A.1.
uA001fig08

Electricity Cost for Households in 2021

(kWh, U.S. Dollar)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: GlobalPetrolPrices.comNote: Acronyms for countries are ISO3. For subregions: CAM-Central America Subregional groupings described in Table A.1.

22. Also importantly, labor costs for low skilled workers appear particularly high in Guatemala relative to comparators. The minimum wage to GDP per capita ratio in Guatemala (a broad proxy for unit labor costs, especially of formal low skilled workers) is not only much higher than in comparator regions/countries but also one of the highest among middle income countries. They are particularly high compared to nearby manufacturing exporters Dominican Republic and Costa Rica, which compete with GTM for the North American market. Panel Figure A.1. shows a strong negative relation between the minimum wage per capita ratio and per capita exports.14

uA001fig09

Minimum Wage to GDP per Capila

(Ratio in 2019)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Sources: IMF World Economic Outlook, US States Department, and IMF Staff Estimates.Note: Acronyms for countries are ISO3. For subregionss CAM-Central America Subregional groupings described in Table A.1.
uA001fig10

Minimum Wage to GDP per Capita

(Ratio in 2019, Guatemala in red)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

23. Guatemala’s export level is aligned to its geographic location and four horizontal policy areas. Rounding up the analysis we note that based on Salinas (2021), the relative standing of Guatemala on proximity to markets, education attainment, governance, infrastructure, and tariff openness, together predict well Guatemala’s current level of NHM Exports per Capita.

D. Conclusions

24. A review of Guatemala’s export determinants points at strengths and weaknesses in its export development framework, which can help design policy strategies to reinforce them. Location wise, Guatemala benefits from its close proximity to the large North American market, which makes it an ideal location for a potential nearshoring of North American value chains. Another strength is its relatively open trade policy regime and FTAs with countries in the Americas, which enhances its markets access to these economies. The most significant constraints to export development and export complexity appear to be its weak governance (particularly related to high crime, low government effectiveness, and weak control of corruption), low access and quality of education, and weak infrastructure (particularly related to roads, railroads, ports, and airports).

uA001fig11

Actual vs. Projected Complex Exports per Capita

(Logarithm of US$)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Salinas (2021).Note: Acronyms are ISO3. Includes year 2016-18

25. Although strengthening its export determinants will require substantial efforts, the analysis above suggests these could have major payoffs. For example, that the combined effect of bringing education, governance, and infrastructure to the levels in Costa Rica would generate a sixfold increase in Guatemala’s total exports and a ninefold increase in its complex exports. This would allow Guatemala to match the export per capita level and complexity of Costa Rica and EAEM countries, and thus more fully take advantage of its proximity to the United States and other large economies, while boosting productivity and growth.15

26. Many countries have stronger policies than expected given their per capita income (see charts in Panel Figure A.2.) and can serve as role models in strengthening those areas. But Guatemala’s governance, education, and infrastructure indicators are considerably below levels expected by its per capita income (Guatemala appears considerably below the fitted line in Panel Figure A.2.), thus suggesting significant room for improvement independently of increases in economic resources. Overall, Guatemala could fivefold increase its total exports and sevenfold increase in complex exports if it improved its education, governance, and infrastructure to levels commensurate to its per capita income.

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Annex I. Regional Classification of Countries

Table AI.1.

Guatemala: Regional Classification of Countries

article image

Annex II. Determinants of Complex Exports

Table AII.1.

Guatemala: Determinants of Complex Exports

article image
Notes: *p<0.1,** p<0.05,*** p<0.01 Panel regressions based on Hausman and Taylor (1981) technique with groups consisting of all combinations of reports and partner countries in UNC on trades databases. Observations ars non-overlapping 5-year averages within the 1962–20 IS period, depending on data availability. Regression specification based on equation (7). Multilateral resistance terms and partner country’s policy variables included (coefficients not reported). Dependent variable is the logarithm of the values of complex exports. defined as exports of products with a Product Complexity Index (PCI) above zsro according to Hausmann and others (2013).

Annex III. Export Complexity and Proximity

Figure AIII.1.
Figure AIII.1.

Guatemala: Export Complexity and Proximity to Other Markets

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: UN Co miracle database.Note: Acronyms are ISO3. Values are averages of years 2016–18.
Figure AIII.2.
Figure AIII.2.

Guatemala: Export Complexity and Governance

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source Worldwide Governance indicators and World Development Indicators (World Bank).Note: Acronyms are ISO3. Values are averages of years 2016–18
Figure AIII.3.
Figure AIII.3.

Guatemala: Export Complexity and Education

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Human Capital Indicators and World Development indicators (World Bank)Note: Acronyms are ISO3. Values are averages of years 2016–18.
Figure AIII.4.
Figure AIII.4.

Guatemala: Export Complexity and Infrastructure

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Logistics Performance Indicators (World Bank).Note: Acronyms are ISO3. Values are averages of years 2016-18.
Figure AIII.5.
Figure AIII.5.

Guatemala: Export Complexity and Import Tariffs

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: WITS Database (World Bank).Note: Acronyms are ISO3. Values are averages of years 2016–18.
Figure AIII.6.
Figure AIII.6.

Guatemala: Export Complexity and Crime

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: UN Comtrade and World Development Indicators (World Bank).Note: Acronyms are ISO3. Values are averages of years 2016–13
Figure AIII.7.
Figure AIII.7.

Guatemala: Export Complexity and Labor Costs

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: UN Comtrade and U.S. State Department.Note: Acronyms are ISO3. Values are averages of years 2016–18.

Annex IV. Export Determinants and Income per Capita

Figure AIV.1.
Figure AIV.1.

Guatemala: Governance and Income per Capita

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Worldwide Governance Indicators and World Development Indicators (World Bank).Note: Acronyms are ISQ3. Values are averages of years 2016–18.
Figure AIV.2.
Figure AIV.2.

Guatemala: Education and Income per Capita

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Human Capital Indicators and World Development Indicators (World Bank).Note: Acronyms are ISO3. Values are averages of years 2016–18.
Figure AIV.3.
Figure AIV.3.

Guatemala: Infrastructure and Income per Capita

(Guatemala in red, fitted line in blue)

Citation: IMF Staff Country Reports 2022, 165; 10.5089/9798400213175.002.A001

Source: Logistics Performance Indicators (World Bank).Note Acronyms are ISO3 Values are averages of years 2016–18
1

Prepared by Gonzalo Salinas.

2

Comparator regions/countries include remote countries as international trade theory and empirics indicate that distant countries are exogenously expected to have less exports per capita

3

This country index is defined in Hidalgo and Hausmann (2009) and is related to the complexity of the products in a country’s export basket.

4

Horizontal” policies target broad sectors by improving their business environment, for example by improving governance, education, or infrastructure.

5

Industrial policy is defined as government intervention in a specific sector which is designed to boost the growth prospects of that sector.

6

As suggested in a recent review of the empirical evidence on the effectiveness of these policies Rodrik (2019), it is too early to suggest that research on the effectiveness of industrial policies has taken off. For sure, there is yet no cross-country statistical evidence supporting their contribution.

7

Population data in this paper is Total Population in World Bank’s World Development Indicators. Governance is approximated by World Bank’s Worldwide Governance Indicators, Education by the United Nations’ Human Development Report Education Index, which is an average of mean years of schooling and expected years of schooling. Infrastructure by the World Economic Forum’s Global Competitiveness Report 12th pillar. Tariff is the simple average tariff in the World Bank’s World Integrated Trade Solution.

8

East Asian Emerging Markets have a high PM because they are part of the large East Asian economic agglomeration, including the large Japanese, South Korean, and Chinese economies. Besides the relatively short distance among them, their connection is sea-based (a most efficient means of transportation).

9

Minimum wages to GDP are used to approximate labor costs (a key determinant in international trade models) in the absence of comprehensive cross-country data on overall wages. The last figure in Figure Panel A.1. shows that there is a significant relation between minimum wage-to-GDP per capita and complex exports per capita.

10

Unfortunately, control of corruption has been falling considerably throughout the 2010s. Salinas (2021) finds that Government Effectiveness and Control of Corruption are the two governance areas most significantly statistically related to exports development and complexity.

11

Interestingly, Plotnikov (2020) finds that opposite causality also holds: lower economic growth results in higher crime (<https://blogs.imf.org/2020/02/24/higher-growth-lower-crime/>)

12

The analysis estimated that if Guatemala were to close its governance gap with the world average it would increase its per capita real GDP growth by between 0.2 and 0.8 percentage points.

13

According to World Economic Forum survey respondents.

14

As suggested in most international trade models (for example, Eaton and Kortum (2002) export development is expected to be negatively affected by high unit labor cost. In the absence of more refined cross-country indicators of unit labor costs we can compare Guatemala’s minimum wage to GDP per capita to those of other relevant countries

15

The Guatemalan government is implementing important reforms in these areas, including conditional transfers on education, digital transparency, crime reduction, promotion of PPPs for infrastructure development, among others. It is also considering important Labor reforms on part-time work and minimum wage to better align wages to productivity.

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Cover IMF Staff Country Reports
Guatemala: Selected Issues
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2022: Issue 165
Publisher:
International Monetary Fund
ISBN:
9798400213175
ISSN:
1934-7685
Pages:
34
DOI:
https://doi.org/10.5089/9798400213175.002
  • <sup><xref rid="RA001fig01" ref-type="fig">Figure 1.</xref></sup>
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    Figure 1.

    Guatemala: Export Performance

  • <sup><xref rid="RA001fig02" ref-type="fig">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Guatemala: Export Performance by Sector

  • <sup><xref rid="RA001fig03" ref-type="fig">Figure 3.</xref></sup>
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    Figure 3.

    Guatemala: Guatemala and Comparators: Export Diversification and Per Capita Levels

  • <sup>Figure 4.</sup>
    View in gallery
    Figure 4.

    Guatemala: Guatemala and Comparators: Export Complexity

  • View in gallery

    Proximity to Markets in 2018

    (US$/mn)

  • View in gallery

    Exports Determinants in Guatemala and Comparators

  • View in gallery

    Governance Components Guatemala and Comparators

    (Index – 2 to 2)

  • View in gallery

    Intentional Homicides in 2018

    (Per 100 thousand persons)

  • View in gallery

    Infrastructure Components Guatemala and Comparators

    (index 0 to 7)

  • View in gallery

    Overall Logistics

  • View in gallery

    Electricity Cost for Businesses in 2021

    (kWh, U.S. Dollar)

  • View in gallery

    Electricity Cost for Households in 2021

    (kWh, U.S. Dollar)

  • View in gallery

    Minimum Wage to GDP per Capila

    (Ratio in 2019)

  • View in gallery

    Minimum Wage to GDP per Capita

    (Ratio in 2019, Guatemala in red)

  • View in gallery

    Actual vs. Projected Complex Exports per Capita

    (Logarithm of US$)

  • <sup><xref rid="RA001fig05" ref-type="fig">Figure AIII.1.</xref></sup>
    View in gallery
    Figure AIII.1.

    Guatemala: Export Complexity and Proximity to Other Markets

    (Guatemala in red, fitted line in blue)

  • <sup><xref rid="RA001fig06" ref-type="fig">Figure AIII.2.</xref></sup>
    View in gallery
    Figure AIII.2.

    Guatemala: Export Complexity and Governance

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIII.3.</sup>
    View in gallery
    Figure AIII.3.

    Guatemala: Export Complexity and Education

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIII.4.</sup>
    View in gallery
    Figure AIII.4.

    Guatemala: Export Complexity and Infrastructure

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIII.5.</sup>
    View in gallery
    Figure AIII.5.

    Guatemala: Export Complexity and Import Tariffs

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIII.6.</sup>
    View in gallery
    Figure AIII.6.

    Guatemala: Export Complexity and Crime

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIII.7.</sup>
    View in gallery
    Figure AIII.7.

    Guatemala: Export Complexity and Labor Costs

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIV.1.</sup>
    View in gallery
    Figure AIV.1.

    Guatemala: Governance and Income per Capita

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIV.2.</sup>
    View in gallery
    Figure AIV.2.

    Guatemala: Education and Income per Capita

    (Guatemala in red, fitted line in blue)

  • <sup>Figure AIV.3.</sup>
    View in gallery
    Figure AIV.3.

    Guatemala: Infrastructure and Income per Capita

    (Guatemala in red, fitted line in blue)

Figure 1.

Guatemala: Export Performance
Figure 2.

Guatemala: Export Performance by Sector
Figure 3.

Guatemala: Guatemala and Comparators: Export Diversification and Per Capita Levels
Figure 4.

Guatemala: Guatemala and Comparators: Export Complexity

Proximity to Markets in 2018

(US$/mn)

Exports Determinants in Guatemala and Comparators

Governance Components Guatemala and Comparators

(Index – 2 to 2)

Intentional Homicides in 2018

(Per 100 thousand persons)

Infrastructure Components Guatemala and Comparators

(index 0 to 7)

Overall Logistics

Electricity Cost for Businesses in 2021

(kWh, U.S. Dollar)

Electricity Cost for Households in 2021

(kWh, U.S. Dollar)

Minimum Wage to GDP per Capila

(Ratio in 2019)

Minimum Wage to GDP per Capita

(Ratio in 2019, Guatemala in red)

Actual vs. Projected Complex Exports per Capita

(Logarithm of US$)
Figure AIII.1.

Guatemala: Export Complexity and Proximity to Other Markets

(Guatemala in red, fitted line in blue)
Figure AIII.2.

Guatemala: Export Complexity and Governance

(Guatemala in red, fitted line in blue)
Figure AIII.3.

Guatemala: Export Complexity and Education

(Guatemala in red, fitted line in blue)
Figure AIII.4.

Guatemala: Export Complexity and Infrastructure

(Guatemala in red, fitted line in blue)
Figure AIII.5.

Guatemala: Export Complexity and Import Tariffs

(Guatemala in red, fitted line in blue)
Figure AIII.6.

Guatemala: Export Complexity and Crime

(Guatemala in red, fitted line in blue)
Figure AIII.7.

Guatemala: Export Complexity and Labor Costs

(Guatemala in red, fitted line in blue)
Figure AIV.1.

Guatemala: Governance and Income per Capita

(Guatemala in red, fitted line in blue)
Figure AIV.2.

Guatemala: Education and Income per Capita

(Guatemala in red, fitted line in blue)
Figure AIV.3.

Guatemala: Infrastructure and Income per Capita

(Guatemala in red, fitted line in blue)