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Guatemala Closing Gaps to Generate More Inclusive Growth Public Disclosure Authorized Systematic Country Diagnostic

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Guatemala Closing Gaps to Generate More Inclusive Growth Public Disclosure Authorized Systematic Country Diagnostic Public Disclosure Authorized Guatemala Closing Gaps to Generate More Inclusive Growth Public Disclosure Authorized Systematic Country Diagnostic Susana M. Sanchez Kinnon Scott J. Humberto Lopez Public Disclosure Authorized Public Disclosure Authorized Latin America & the Caribbean Region Guatemala: Closing Gaps to Generate More Inclusive Growth Systematic Country Diagnostic Susana M. Sanchez, Kinnon Scott and J. Humberto Lopez Central America Country Management Unit Latin America and the Caribbean Region © 2015 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpre- tations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other informa- tion shown on any map in this work do not imply any judgment on the part of The World Bank concern- ing the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http:// creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the follow- ing conditions: Attribution—Please cite the work as follows: Sanchez, Susana M., Kinnon Scott and J. Humberto Lopez. 2016. Guatemala: Closing Gaps to Generate More Inclusive Growth. Systematic Country Diagnostic. Washington, DC: World Bank. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that reuse and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@ worldbank.org. Cover image: Kobby Dagan / Shutterstock.com Cover design: Florencia Micheltorena Contents Abbreviations and Acronyms ................................................................xi Acknowledgements ........................................................................xiv About the Authors .........................................................................xv 1. Understanding Guatemala’s Development Challenges ......................................1 a. Overview .............................................................................1 b. Why is Poverty So High and Persistent? ...................................................3 Low Inclusion .........................................................................3 Low Growth ...........................................................................4 Social, Fiscal, and Environmental Sustainability ............................................4 c. The Legacy of the Past: A Fragmented Social Contract and Weak Institutions ...................5 d. New Pressures on Guatemala ............................................................9 e. Priorities .............................................................................11 Inclusion Challenges – Towards a More Inclusive Social Contract ............................12 Challenges to and Opportunities of the Growth Model .....................................12 Fiscal, Social, and Environmental Challenges .............................................14 f. Knowledge and Data Gaps .............................................................15 g. Structure of the Report ................................................................16 References .............................................................................17 2. Poverty and Shared Prosperity 2000-2014 ...............................................19 a. How Guatemala Compares to its Peers ...................................................19 Income Poverty Levels and Trends .......................................................19 Shared Prosperity: Income Growth among the Bottom 40 Percent ...........................23 Inequality ............................................................................23 Economic Mobility ....................................................................25 b. The Divide Between the Poor and the Non-poor within Guatemala ..........................26 Official Poverty Levels and Trends (Consumption-Based Measure). 26 The Geographic Divide ................................................................27 The Ethnic Divide .....................................................................30 The Human Capital Divide .............................................................32 Other Demographic Characteristics .....................................................32 c. Drivers of Changes in Poverty and Shared Prosperity ......................................34 Consumption: Growth, Distribution, and Prices ..........................................34 Drivers of Observed Changes in in Income Poverty ........................................34 Sources of Income ....................................................................35 d. Conclusion ...........................................................................37 References .............................................................................37 iii 3. Inclusion and Exclusion ...............................................................41 a. Limited Labor Market Opportunities ....................................................41 b. Constrained Human Capital Accumulation ...............................................44 Malnutrition .........................................................................45 Health ...............................................................................47 Education ............................................................................49 c. Limited Opportunities: Infrastructure and Services ........................................53 d. The Role of Spending and Institutions in Limited Opportunities .............................59 Ineffective Spending ...................................................................59 Inadequate Spending ..................................................................62 Inadequate Institutions ................................................................64 e. The Link between Limited Opportunities and Poor Human Capital Outcomes .................65 f. Vulnerability .........................................................................72 g. Convergence and Divergence ...........................................................77 References .............................................................................78 4. Trends and Drivers of Growth in Guatemala .............................................83 a. Growth Trends .......................................................................83 b. Regional Disparities ...................................................................85 c. Growth Decomposition ................................................................86 d. A Sector Perspective on Economic Activity, Job Creation, and Informality ....................89 Job Creation and Informality ...........................................................89 Financial Sector. 92 Information Technology and Information Technology Enabled Services ......................95 Energy Sector ........................................................................96 Agriculture Sector. 96 Manufacturing and Construction Sector ................................................101 Tourism ............................................................................101 e. Foreign Direct Investment .............................................................102 f. Exports .............................................................................102 g. Underlying Constraints on Inclusive Growth
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