Wage equations and the regional economics in Guatemala

by Carlos Figueroa

Institution: University of Illinois – Urbana-Champaign
Department: 0274
Degree: PhD
Year: 2015
Keywords: Regional Economics
Record ID: 2062118
Full text PDF: http://hdl.handle.net/2142/72945


Guatemala is one of only three countries in America which urban population is smaller than the rural one. United Nations estimates that in the coming years the economic structure of the country will change to an urban country. This situation triggers the need of an enhanced understanding of the role of market size, income distribution, regional disparities, and regional economic growth with respect to the ways in which they condition the economic growth of a nation. Given such framework, the study pretends to explore some economic conditions of the regions of Guatemala that may influence decision making of workers and firms when moving between regions. The theoretical topics in the research involve the utilization of wage equations and the endogenous growth theory. In the first case, the purpose is to evaluate two issues: the spatial distribution of the wages in Guatemala through the potential market of new economic geography (NEG), and the influence of the local labor conditions on the determination of the wage rates in the regions through the wage curve. Regarding the endogenous growth theory, it is presented an analysis of the influence of public capital on productivity and production of non-agricultural firms located in different municipalities of the country. The research includes an analysis of the influence of neighboring effects of their economic conditions as regards labor market and public investment, a situation that very few papers have explored (Palombi and Fingleton, 2013). In order to accomplishing such tasks, the research is divided in two parts. The first part, which is concentrated on the analysis of wage equations, uses spatial pooled cross sectional data for 2006 and 2011 including information at individual and regional level for the estimation of both wage equations. Thus, about the NEG wage equation, there are two outputs to underline. One is that the model demonstrates not only that the metropolitan area has the higher market access, but as time passes such market is enlarged further; and second, the estimates of market access are statistically significant and too small, meaning that market access is not enough to explain the spatial distribution of wages, and hence the economic regional imbalances of the country. As regard the wage curve, the results reveal that both local and neighboring labor market conditions (unemployment and underemployment) exert important and negative influence on the wage determination in each region in Guatemala. Thus, differences in wages across the regions can be explained by labor condition of their locales. With respect to the second part of the research, the endogenous growth theory, the purpose is to analyze the relationship between public investment and economic performance of municipalities in Guatemala. In order to accomplish such a task, the paper uses a panel data in two econometric models based on the endogenous growth model. The first model uses a Cobb-Douglas production function which is a widely accepted by the academia and researchers to…