Investment In Order To Grow

Experts point out that, in order to obtain continued growth rates above 5%, the country's economy requires profound changes. Miracles do not exist. It is rather the correct actions that will render good results.

Theories on growth

During the last years, Guatemala has had an annual growth rate below 4%. It is estimated that the population grows at a rhythm of 2.36%, and more than half of the population is poor, making such rate insufficient to eradicate poverty.

A study by Corbo and Rojas in 1993, concerning comparative growth in Latin-American and Asian countries, found that the one most important factor to explain the increase in the growth rate of the per capita income was the investment rate.

The 1996 PNUD Report of Human Development states what economists supposed all along, that the main component of productive wealth in a country is the physical capital (goods produced). Notwithstanding, in an evaluation by the World Bank of 192 countries, it was found that the physical capital only represents 16% of all productive wealth. Natural capital turned out to be more important, representing 20%. Even more important is the human capital: 64% of the total productive wealth.

In 1995, total investment in Guatemala was approximately 11.6 of the PIB, mostly from the private sector. During the last 30 years, Government has been responsible for providing most of the social services and infrastructure. Notwithstanding, the effort of the Government has not been successful in broadening the coverage and quality of the services. In order to have more efficient services leading to an increased economic growth, the role of the State in the services provided must be changed. In order to improve the quality of investment, it is necessary to assign the existing resources in an efficient manner, under the discipline of markets and competition, which means that state monopolies must be eliminated.

The Government must invest in primary education and preventive health, and the private sector should invest in other areas. Education if a high priority area. It has been proven that those persons without formal instruction, compared to those with some level of education, obtain lesser income throughout their lives.

Education and infrastructure: their relationship to the level of wealth

Aware of the importance of investment in infrastructure and in human capital, a quantitative analysis, by means of a statistical model, was carried out for Guatemala. The Index for Unsatisfied Basic Necessities (NBI) was employed as a way to judge poverty. Four variables were analyzed, three in the area of infrastructure and one in the area of human development. For those in the area of infrastructure the following factors were taken into account: 1) density of paved roads per square kilometer, 2) number of telephone lines for each 100 inhabitants, and 3) the percentage of coverage of electric energy. As to the human development, the percentage of primary education coverage by department was analyzed.

Through the analysis performed, a clear relationship was observed: the higher the infrastructure and education levels, the less poverty. Economic growth depends not only on more investment in machinery and equipment, but also on better prepared human capital and a better and more adequate infrastructure. The challenge is to invest, and to improve the quality of these investments.