Economic Growth: Why is Panama Succeeding and Nicaragua is Failing?

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There are approximately one billion people living in extreme poverty worldwide. Paul Collier identifies this group of people as the ‘bottom billion,’ because they are living in countries plagued with fourteenth century settings (civil war, diseases, ignorance, etc.). Meanwhile, the majority of the remaining five billion people live in countries that are experiencing unprecedented levels of economic growth and well being (Collier, p. 3-5). The objectives of this paper are: a) to identify two major positives factors and two major negatives factors for economic growth, b) to compare and analyse economic growth indicators for Panama and Nicaragua, and to discuss three important lessons drawn from these countries’ economic growth experiences. …show more content…

A fragile system of government with limited check and balances can certainly prevent a country from reaching its maximum sustainable level of production. Fragile and corrupt governments translates into lower incentives to increase productivity and the discouragement of future investment (Collier, p. XX). Income inequality can also severely harm a country’s production function; therefore, hindering economic growth. A decrease in disposable income and purchasing power, the inability of the poor to access credit or invest in human infrastructure are some of the effects of income inequality. By not allowing a certain group fo the society to perform at its maximum level, we are holding economic growth below the maximum sustainable level. In order to further understand the previously stated economic growth factors, let’s compare and analyse Panama and Nicaragua’s economic growth indicators for the period comprehended between 1990 and 2010. According to World Bank’s World Development Indicators (WDI), in terms of research and development expenditure (% of GDP), Panama accounts with an average annual level of 0.29%, while Nicaragua accounts with an embarrassing 0.065%. Nicaragua’s low expenditure in research and development has potentially harmed the spread of technology across its markets. The average annual exports of goods and services (% of GDP) for Panama is 81.12% and for Nicaragua 26.56. Consernign the net inflows of

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