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Preliminary findings on the economic potential of Panama and the impacts of immigration

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Preliminary findings on the economic potential of Panama and the impacts of immigration

  1. 1. Center  for  International  Development   at  Harvard  University Analyzing  the  Economic  Potential  of  Panama November  4,  2016
  2. 2. Panama  has  been  growing  at  a  fast  pace,  doubling  its  income   per  capita  over  the  previous  decade 2 Income  per  capita
  3. 3. -­‐0.3% 0.3% 0.8% 1.3% 1.8% 2.3% 2.8% Construction Wholesale,  retail,  trade  services Transport  and  communications Housing Financial  intermediation Public  utilities Mining Manufacturing Restaurants  and  hotels Other  social  services Social  services  and  private  health Private  education Agriculture Fishing 2005-­‐2015 2010-­‐2015 Growth  has  been  spearhead  by  construction,  and  the  development  of  a   competitive  modern  service  sector  on  activities  surrounding  the  Canal 3 Sector  Contribution  to  Growth (CAGR  *  Average  sector  share  on  GDP) Non-­‐residential  construction   growing  at  10-­‐year  CAGR   (20.25%)  equivalent  to   doubling  the  stock  of   structures  every  4  years Transport  and  communications Financial  intermediation Wholesale,  retail,  trade  services
  4. 4. In  spite  of  some  improvements  over  the  previous  decade,  Panama   remains  among  the  most  unequal  countries  in  the  world 4 PAN 2030405060 GINI  Index,  year  2010 6 8 10 12 GDP  per  capita  (logs) Source:  own  calculations  based  on  WDI  (World  Bank) Gini  coefficient  (2013)
  5. 5. Panama  embarked  on  a  high-­‐skilled  growth  strategy,  based   on  the  competitiveness  of  its  service  tradable  sector 5 Economic  Complexity  by  Industry
  6. 6. As  construction  recedes,  the  challenge  will  be  on  finding  enough   skill  labor  required  to  foster  growth  on  the  modern  service  sector 6 Economic  Complexity,  qualified  labor  and  share  of  employment  (2010)
  7. 7. The  government  has  made  significant  efforts  to  upgrade  their  skill-­‐base   via  education,  and  so  far  has  achieved  some  quantitative  results… 7 Distribution  by  schooling  (%  of  total  labor  force),  2012
  8. 8. …  but  from  a  qualitative  standpoint  the  results  are  very  different   8 Program  for  International  Student  Assessment  (PISA,  2009) # rank Shanghai-­‐China 575 1 OECD  average 501 24 Chile 447 45 Uruguay 427 49 Mexico 416 51 Brazil 405 54 Colombia 402 55 Argentina 401 58 Panama 376 63 Peru 369 65 science country/economy Science # rank Shanghai-­‐China 600 1 OECD  average 496 24 Uruguay 427 48 Chile 421 50 Mexico 419 51 Argentina 388 56 Brazil 386 58 Colombia 381 59 Peru 365 64 Panama 360 65 mathematics country/economy Mathematics # rank Shanghai-­‐China 556 1 OECD  average 493 27 Chile 449 45 Uruguay 426 48 Mexico 425 49 Colombia 413 53 Brazil 412 54 Argentina 398 59 Panama 371 63 Peru 370 64 reading country/economy Science
  9. 9. Panama:  Headquarters  Law  (Law  44) Has  attracted  117  multinational  regional  headquarters 9
  10. 10. Special  Economic  Zones: Import-­‐Export,  Industrial  Park,  Technology  Park 10 Special  Economic  Zones • Special  Visa  for: • Investors   • Workers • Dependents • Allowed  to  hire     >10%  immigrants • Labor  regime: • Overtime  rate  (25%) • Days-­off  rate  (50%) • Flexibility  to  operate   Sundays  &  holidays • Special  Custom  Reg. • One-­stop  shop • Oldest  in  the  world • Largest  in  LATAM • 2nd worldwide • 2,527  companies • 29,786  jobs • Income  tax • Import-­Export  tax • Sales  tax Import-­‐Export Colon  Free  Zone  (1948) Characteristics Tax  exemptions Immigration   incentives Other • Import  tax • Remittances  tax • ITBMS  tax • Income  tax • Dividend  tax • Import-­Export  tax • Sales  tax • Remittances  tax • Commercial  license • Patent  &  ITBMX  tax Ciudad  del  Saber Technology  Park  (2000) Panama-­‐Pacifico Industrial  Park  (2007) • 75  SMEs • 1,290  direct  jobs • Focus:  innovation   and  technology • 251  companies   (41%  multinational) • 2,305  jobs • Master  plan: • 1,000,000  sq.mts • 40,000  jobs • Special  Visa  for: • Workers • Allowed  to  hire     >10%  immigrants • Allowed  to  hire     >10%  immigrants
  11. 11. The  strategy  of  attracting  multinationals  has  raised  the  skill  bar  and  allowed   Panama  to  develop  a  modern  service  sector,  but  many  restrictions  remain 11 • There  is  a  list  of  27  occupations  that  are  legally  restricted  to  immigrants,  including   all  type  of  engineers,  dentists,  agriculture  scientists,  architects,  doctors,   economists,  lawyers,  chemists,  and  educators  in  the  areas  of  history  and  geography • Significant  restrictions  to  foreigners  within  the  SEZs to  free  flow  across  firms,  or   move  into  the  local  economy  and  create  their  own  firms: • Hefty  fees  for  visa  renewals • Years  spent  on  SZEs  do  not  count  for  residence  purposes • Visas  are  revoked  if  foreigners  leave  the  company  originally  sponsoring  them • Firms  can  be  expelled  from  City  of  Knowledge  if  they  move  from  innovation  to   commercialization  and  sales,  falling  into  a  sort  of  legal  limbo • Restricted  citizenships  (India,  China)  for  “national  security  reasons” • All  these  restrictions  are  preventing  know-­‐how  and  productive  capacities   accumulated  in  the  SEZ  from  spilling  over  to  the  rest  of  the  economy
  12. 12. A  sign  of  skill  scarcity: Wage  premiums  to  foreign  workers  are  very   high  on  average(50%),  and  positive  for  all  industries  and  occupations 12 Wage  premiums  to  foreigners  (2010)
  13. 13. Restricting  the  free  flow  of  highly  skilled  immigrants  is  a  policy  that   is  not  helping  the  Panamanians  (neither  low-­‐skill  nor  high-­‐skill) 13
  14. 14. Restricting  the  free  flow  of  highly  skilled  immigrants  is  a  policy  that   is  not  helping  the  Panamanians  (neither  low-­‐skill  nor  high-­‐skill) 14
  15. 15. 15 Immigrants  are  also  5  times  more  likely  to  be  entrepreneurs
  16. 16. Final  thoughts 16 • In  Panama  we  have  explored  how  and  where  skills  and  know-­‐how   developed  in  competitive  services  can  be  redeployed   • Our  work  in  Panama  debunks  the  myth  of  immigrants  having  negative   impacts  on  natives:  The  most  benefited  are  low-­‐skilled  Panamanians • Structural  change  from  low-­‐productivity  agriculture  and  construction  to   modern  competitive  service  sector  will  demand  a  skill  upgrade • Massive  restrictions  to  migration  are  hindering  spillovers  and  maintaining   know-­‐how  locked  into  the  gates  of  Special  Economic  Zones • Further  research: • Data  on  business  travelers  (to  Panama)  would  allow  us  to  address  causality   between  flow  of  immigrants  and  the  appearance  of  new  economic  activities • Social  Security  data  would  allow  us  to  track  foreigners  that  flow  in  and  out  of   the  Special  Economic  Zones  or  multinational  headquarters,  and  assess  their   impact  in  the  domestic  economy

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