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Central America experienced moderate growth during the last decade, including in the years leading up to the global financial crisis, but the rate of convergence toward advanced country income levels has still been slow. Moreover, forecasts imply that these trends will continue. What can be done to spur higher growth in Central America? We bring new data to bear on this question-version 7.0 of the Penn World Table and a new IMF database on structural reforms. Our cross-country panel regression of economic growth using System GMM captures the importance to growth of conditional convergence, factor accumulation, and macro policies. In addition, structural efficiency is a significant factor in explaining growth performance. We construct a broad index of efficiency and find that increasing the degree of structural efficiency by one standard deviation raises growth by ½ percent. This implies that Central American countries could significantly increase their long-run growth rates by increasing the flexibility of markets and improving the quality of regulation.

Central America--Economic policy. --- Economic development--Econometric models. --- Economic policy. --- Economic nationalism --- Economic planning --- National planning --- State planning --- Economics --- Planning --- National security --- Social policy --- Finance: General --- Foreign Exchange --- Labor --- Macroeconomics --- Multiple or Simultaneous Equation Models: Models with Panel Data --- Institutions and the Macroeconomy --- Macroeconomic Analyses of Economic Development --- Economic Development: Financial Markets --- Saving and Capital Investment --- Corporate Finance and Governance --- Institutions and Growth --- Measurement of Economic Growth --- Aggregate Productivity --- Cross-Country Output Convergence --- Human Capital --- Skills --- Occupational Choice --- Labor Productivity --- Personal Income, Wealth, and Their Distributions --- General Financial Markets: General (includes Measurement and Data) --- Labour --- income economics --- Finance --- Currency --- Foreign exchange --- Human capital --- Structural reforms --- Personal income --- Commodity markets --- Purchasing power parity --- Macrostructural analysis --- National accounts --- Financial markets --- Income --- Commodity exchanges --- El Salvador --- Economic development --- Econometric models. --- Central America --- Income economics