Panama has experienced rapid economic growth over the past decade by developing its service sector centered around the Panama Canal. Growth has been led by construction and competitive modern services like finance and trade. However, inequality remains high and education quality needs improvement. Restrictions on skilled immigration prevent skills and knowledge from spreading beyond special economic zones to the wider economy, which would benefit Panamanians. Loosening immigration policies could help address skill shortages and further economic development.

1. Center
for
International
Development
at
Harvard
University
Analyzing
the
Economic
Potential
of
Panama
November
4,
2016

2. Panama
has
been
growing
at
a
fast
pace,
doubling
its
income
per
capita
over
the
previous
decade
2
Income
per
capita

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. 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. Panama
embarked
on
a
high-­‐skilled
growth
strategy,
based
on
the
competitiveness
of
its
service
tradable
sector
5
Economic
Complexity
by
Industry

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. 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. …
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. Panama:
Headquarters
Law
(Law
44)
Has
attracted
117
multinational
regional
headquarters
9

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. 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. 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. 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. 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
Immigrants
are
also
5
times
more
likely
to
be
entrepreneurs

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