Latin America is in the economic doldrums. After almost a decade of progress, GDP has been negative for the past two years, making it the region’s worst contraction since the 1980s.
But there’s one exception: Panama. Between 2001 and 2013, the country’s economy grew at twice the rate of the regional average. In fact, it has been one of the fastest growing economies in the world.
So what’s its secret sauce? Probably not what you’d expect, given the backlash across the rest of the world: immigration.
Immigrants: an economic boon
That’s according to Harvard Professor Ricardo Hausmann, speaking in a session at the World Economic Forum on Latin America.
“What Panama shows the rest of Latin America is that to grow significantly, you need to import talent,” Hausmann explained. That’s how countries like the US have managed to gain a competitive edge.
“In the US, 14% of the population is foreign-born and 30% of entrepreneurs are foreigners. Most Harvard professors are foreigners. In Canada, Australia and New Zealand, 25% of the population is foreign born. In Singapore, 40% of the population is made up of foreigners.”
It was a point he hammered home in a later session: “It is very hard to create world-class institutions and to be able to innovate by relying exclusively on locally born talent. If it was based on locally born talent, Silicon Valley would not exist.”
In fact, look back in history and you’ll see that many of Latin America’s success stories are down to immigration. “The companies that exist in Latin America today are those that were founded by the migrants from three generations ago,” Hausmann added.
And yet today, immigration in the region is very low. “In Mexico, 0.4% of the population is foreign born. In Colombia, there is one foreign-born person for every 400 people. And when the country was given the opportunity to absorb all the talented people wanting to get out of Venezuela, it put every obstacle it could in their way.”
But Panama, along with Costa Rica, is a regional outlier. “Panama’s economic boom has led to a significant amount of immigration, even though the law almost forbids it so they’ve been looking for ways around it. What the country has shown is that to grow significantly, you need to import talent.”
So while most policy-makers and experts focus on the importance of education for boosting growth in the region, Hausmann thinks the solution lies elsewhere. “If we want to build our countries, we have to be able to absorb the talent of the world. But our legislation and attitudes to immigration are preventing this.”
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This article has been updated.