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Service industries and regional integration are keys to growth

Friday, July 8, 2016


 

An emphasis on service industries, greater regional integration, and an efficient environment for doing business, are keys to growth in the region, according to a recent publication by the UN’s Economic Commission for Latin America and the Caribbean.

As far as the new economy is concerned, foreign direct investment rose by 6 percent in 2015 in Central America, whose model is increasingly based on services and renewable energy.

Meanwhile FDI in South America, which plummeted by 14 percent, will likely recover when commodity prices rise.

But a boom-and-bust cycle may not be the best way to achieve sustainable growth.

Central America did well in FDI person, at $258, based on total 2015 investment of $12 billion.

Colombian FDI per person was $250, while Mexico had the biggest absolute increase in FDI, which reached $30 billion,

But this represented only $235 for each Mexican.

Central America could do better, if it countered the problem of diseconomies of scale with with a joint approach to FDI, while breaking down barriers to internal trade, according to Eclac.

Like the European Union, Central America could operate a single economic region, while preserving the national characteristics of each of member.

A better business climate would also help.

Many of the region’s countries have a rank low on the Doing Business Index published by the World Bank.

Only a few countries have improved their relative position in recent years —including Costa Rica, El Salvador, and Mexico.

An improvement of only 1 percentage point in the Doing Business Index is associated with an increase in FDI of between $250 million and $500 million, according to the World Bank.