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Panama Changing Structure of the Economy
The structure of Panama's economy in the twentieth century has
been characterized by the dichotomy of a large internationally
oriented services sector and a small inward-looking goods sector.
The major change in that structure has been the rapid growth of the
services sector. In 1950 services accounted for about 57 percent of
GDP; that share rose to 63 percent in 1965 and to over 73 percent
in 1985
(see
fig. 7). Given Panama's geographic location, modern
infrastructure, and an educated population trained in commercial
and financial activity, services will likely remain the leading
sector of the economy.
In contrast, the goods sector has declined in relative terms.
Although efforts have been made to stimulate agriculture and
industry--and both registered substantial growth--their share of
GDP has fallen as that of the services sector has risen. In the
late 1980s, one of the greatest challenges facing Panamanian
policymakers was that of using the services sector as a springboard
for growth, primarily in industry but also in agriculture.
During the Torrijos administration, the economy was stimulated
in several areas. The principal stimulus to the services sector was
banking, articularly
offshore banking (see Glossary).
Transportation also increased rapidly, along with expansion of the
road network. Substantial investments were made in the
communications system in an effort to meet international standards
expected by the extensive network of foreign businesses. Storage
and warehousing grew rapidly in response to the economy's own needs
and particularly to the foreign business conducted in the CFZ.
Industrialization progressed rapidly after 1950, with
industrial production rising from 10 percent of GDP in 1950 to 19
percent in 1965. This expansion was based primarily on import
substitution. Industry continued to grow at an average annual rate
of 5.9 percent from 1965 through 1980, but registered negative 2.2-
percent average annual growth between 1980 and 1985.
As a result of the lack of growth as well as the rapid rise of
the services sector, industrial production had dropped slightly as
a percentage of GDP in 1985--to just under 18 percent.
Manufacturing accounted for about half of the industrial sector,
followed by construction, energy, and mining. Given the small size
of the domestic market, observers believed that future industrial
growth would rely primarily on foreign markets. Success, therefore,
would depend to a large extent on Panama's ability to make its
industry internationally oriented and competitive.
Although the agricultural sector continued to expand and to
employ the largest number of workers, its share of GDP declined
substantially, from 29 percent in 1950 to 18 percent in 1965 and
about 9 percent in 1985. This sector grew at a respectable average
annual rate of 2.4 percent between 1965 and 1980, and 2.7 percent
between 1980 and 1985, but it could not keep pace with the rapid
growth rate of the services sector. Bananas, shrimp, and sugar
continued to lead the list of export items. The expansion of the
agricultural sector hinged on exports and product diversification.
Data as of December 1987
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