Female Employment and Economic Integration in Central America

ABSTRACT: Extensive literature has shown that women’s employment contributes to increasing rates of household savings and economic growth. Likewise, evidence has been reported that in an economic integration scheme, such as that of Central America, the strong economic interdependence existing between countries, because of their relatively high trade flows of imports and exports, gives rise to the spread of economic developments occurring in a country. This paper investigates the extent to which the increase in female employment in the countries of the Northern Triangle of Central America (Guatemala, El Salvador, and Honduras) leads to the increase in growth rates in the other countries (Nicaragua, Costa Rica, and Panama). For this purpose, principal components, which is a data compression methodology, is used. The variables that are included in the vector of principal components are the female-to-male employment ratios in the industrial sectors of the Northern Triangle countries. All data used in the analyses were taken from the World Bank’s World Development Indicators. The first principal component of these variables explains 77 percent of the variance, and its decrease represents the deindustrialization of the respective countries. The second principal component accounts for 17 percent of the variance, and its increase represents the expansion of the service sector in the countries. The estimation of error correction equations showed that the first principal component of the female-to-male employment ratios of the industrial sector in Guatemala, El Salvador, and Costa Rica, exerted positive impacts on the economic growth rates of Nicaragua, Costa Rica, and Panama, while the second principal component exerted negative impacts. The results also showed that the ratios of female to male industrial employment, as well as the first principal component, fell as tariffs on imports were reduced, reflecting a process of deindustrialization which has led to losses in economic growth, and a decrease in trade flows, and rising youth unemployment and increases of the underground economy with adverse impacts on productivity. Likewise, trends towards economic stagnation and rising unemployment have led to increases in irregular emigration and remittances. Another important result is that the process of deindustrialization, fueled by the extreme openness of economies, has generated a substantial increase in the homicide rate. In summary, the results show that female employment generates increases in the economic growth rate of the respective country and in the other member countries. However, this process of regional employment induction is undermined by the extreme openness of economies, which means that the main beneficiaries of the economic dynamism imparted by the increase in female employment may be the countries from which it is imported. In other words, “globalization” or “openness” frustrates national efforts at economic and social development. It should be noted that in the 1960s and 1970s, when the model of import substitution prevailed, the Central American economies grew at rates twice as high as those prevailing after the “reforms.” The economic policy recommendations are based on the promotion of women’s employment by increasing the levels of female schooling, the establishment of national networks of childcare centers, combating discrimination against women in the workplace, etc. Efforts to increase women’s employment will be better developed if they are structured within the framework of a national/regional employment strategy, in which objectives and targets would be established for each country, and the actions to be carried out in the areas of obtaining resources, identifying, approving and supervising projects would be outlined, and the results goals would be established with the respective indicators to be achieved in the medium and long term. But it should be pointed out that these actions cannot yield the results sought in the current structure of extreme openness of economies, which makes it necessary to design and implement policies to achieve the reindustrialization and re-agriculturalization of the economies, seeking, in addition to increasing economic dynamism, the increase of quality employment, and the reduction of violence and irregular emigration, the achievement of self-sufficiency and sustained increases in the production of goods of special importance. The results of this work have shown that in efforts to reignite economic growth, women’s employment and Central American economic integration can play important roles.