Remittances, Regional Integration, and Balance of Payments Constrained Growth in El Salvador

Abstract

This paper presents a reworking of Thirlwall's model of economic growth restricted by the balance of payments for El Salvador, taking into account its trade flows with the other Central American countries and its remittances. The results indicate that there is a restriction on the economic growth of this country determined by the economic growth of the other countries of the subregion. It is also found that the role of remittances in alleviating external restriction is low. Evidence is presented that this restriction can be overcome by increasing the quality of education. The work concludes by pointing out the urgency for Central American countries to substantially improve the quality of their educational systems, as a means of increasing their economic dynamism.