Road to economic growth

Abstract

In Guatemala as a consequence of a inadequate education and specially lack of demand in the labor market or an increasingly unemployment, the percentage of population living below the poverty line has reached more than 51% of the total population, therefore youth are increasingly vulnerable to be involved into organized crime and violent groups. All these problems grow along with the fact that Guatemala owns one of the lowest levels of tax revenues (nearly 11 percent of GDP), along with this the high levels of corruption accelerates the generation of a negative spillover effect that affects economic growth. From the side of the public sector, Government is not strong enough (in terms of the size of the budget and the efficiency of the allocation of the budget) to implement a efficient security program, a good health net that improve nutrition of children (Guatemala has one of the highest levels of malnutrition in the hemisphere) to summarize, the role of the public sector is constrained with the limited resources that impede to address the challenges associated with the increasing violence and crime, and other health issues, or to generate the economic development necessary to decrease Guatemalas high levels of poverty.

Justice and security entities are structural weak and laws are not strong in practice or are not enforced. Therefore in order to alleviate the propagation of poverty and the decadent levels of development, Guatemala may need urgently to use other sources of economic resources to try to reduce poverty and increase a sustainable economic growth, such sources could in certain extent be remittances sent by relatives working primarily in the United States but also foreign aid sent by donors in other countries, if these flows of money are used with intelligence and efficiently then the externalities in society and the effect in poverty and economic growth can be completely positive.

This thesis attempts to determine singular uniqueness in the effect that remittances and foreign aid can have in the levels of economic growth but also in the decrease in poverty, the novelty of this paper relies in the use of a simple regression and in the employment of data available in the Central Bank of Guatemala and also the World Bank also this paper will try to capture the relationship that the theory predicts or on the other hand a result that may contradict the theoretical analysis in regard of remittances and foreign aid.