The ideal trilogy for better growth in Central America and the Dominican Republic

A country’s economic growth data often generates keen interest: the press and economic analyses cover it closely and it is an aspirational reference for public and private sector decision-makers.

But we must go beyond the data to look more closely at the quality of this growth: is it helping the country get closer to the economic performance of more advanced economies? Does it benefit more people? Does it leave room for the country to adapt to adversity? Does it have the characteristics of “the ideal trilogy”, that is to say, is it dynamic, inclusive and sustainable?

Central America and the Dominican Republic have a good track record of economic growth.  Between 1991 and 2019, Central America grew by an average of 4.5% per year, and the Dominican Republic by an average 5.3% between 1993 and 2018. They advanced at a faster rate than the rest of Latin American and the Caribbean countries over the last three decades and even more than the annual average for OECD countries.

Unfortunately, that growth has not been enough for Central America and the Dominican Republic to close the gap with the richest countries. For example, per capita income in most of the region's countries has been below 20% of per capita income in the United States for 70 years. In contrast, other regions have closed their gap: per capita income in East Asia and the Pacific rose from 10% in 1950 to 30% of the U.S. per capita income today, and Eastern European countries jumped from a similar level to around 40% of the U.S. per capita income.

That growth was also insufficient to substantially reduce poverty and inequality. About 1 in 3 Central Americans lived in poverty before the pandemic, and the countries in the region -except for El Salvador and the Dominican Republic- are among the most unequal in the hemisphere. 

The good news is that countries are now recovering from the severe recession of 2020 and posting strong growth. It is the right time to rethink the future of Central America and the Dominican Republic and aim for greater and better economic growth that will end poverty and bring more prosperity to all. An economic growth that meets the ideal trilogy: dynamic, inclusive, and sustainable.

Towards the ideal trilogy of growth

Central America and the Dominican Republic have great potential to unleash strong economic growth that is: 

• Dynamic, with increasingly productive economies and workforces. It will only be possible if the countries invest in innovation and implement strategies to export more diverse and sophisticated products and services. This will require efforts to strengthen the capacities of companies and workers and to continue to improve business environments. Regional trade facilitation is also key. The World Bank estimates that if WTO trade facilitation agreements are fully implemented, trade costs, which are currently very high in the region, would be reduced by 15%. This would lead to an increase in regional GDP of 4.3% by 2030. If this reduction in trade costs is extended to Mexico, trade with Mexico would grow 130% and regional GDP would increase by 6.7% by 2030.

•  Inclusive, with opportunities for the entire population and in particular for the poorest. By investing more and better in human capital and the provision of basic services, more people will have access to quality education and health. Addressing the gaps in knowledge and skills will strengthen the productivity, flexibility, and innovative capacity of the labor force. Investing in human capital will also support the development of modern industries, intensive in high-skilled workers. The region also needs measures to pull labor out of the informal economy and expand the participation of women and youth in the labor market.

• Sustainable, so that growth can adapt to economic or climatic adversities. Public and private investments are needed to close physical and digital infrastructure gaps. It will be key for these investments to be resilient to disasters, reduce the exposure of people and countries to natural or economic risks, and eliminate or mitigate the secondary effects of economic activities that threaten the environment and future growth. Central America and the Dominican Republic have ample opportunity to strengthen their institutions and the rule of law, including transparency and government effectiveness. All of this will help promote the region's competitiveness on the global market and increase its opportunities to attract quality business and investment.

At the World Bank, we are committed to working with governments, the private sector, civil society, community organizations, youth, women, indigenous peoples, and partners from the international community to rethink the future of Central America and the Dominican Republic. A future with dynamic, inclusive and sustainable growth.