Historically, the economic integration between Panama and Colombia has been limited because there is no ground connectivity. The section of road of the Pan-American Highway that should connect both countries is incomplete. Today, there have been many attempts to construct the aforementioned road. The purpose of my dissertation is assessing if: Ground Connectivity Essential for Economic Integration between Panama and Colombia?
It is worth pointing out that in this context, economic integration is understood as the integration among developed and developing areas.[1] For this reason the methodology used is mainly based on the World Development Report (2009) "Reshaping Economic Geography" which aims to look at the different factors that influence the economic integration at different geographical scales (international, national and local ones) such as the necessary transformations for integration (decreased divisions, shortened distances and increased densities) as well as the economic forces that interact (specialization, migration and agglomeration). The analysis of those variables together allow for deciding if economic integration is possible.
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The resulting conclusions are surprising since my hypothesis was that ground connectivity was essential for economic integration. Nonetheless, real economic integration was in progress due to a free trade agreement that had already been signed. There were many signs of goods and services specialization between both countries. Distance was not a problem because the majority of ships dock at both Colombian ports as well as Panamanian ones. Even if the highway were constructed between both, the construction would be economically harmful. The main reason for this is that Medellin, one of the main Colombian manufacturer cities, might use the Panama Canal rather than other Colombian ports. Consequently, many ships would not stop in the Colombian ports (Buenaventura and Cartagena), since those ports would not have economies of scale provided by the combination of goods from Medellin and other interior Colombian cities. The construction of the highway would be useful for Medellin because this city could transport their goods to both oceans from just one point. However, according to economic analysis, the construction would not be useful for Colombia as a whole since many cities might not possess economies of scale in the ports, thus making it economically unnecessary for ships to stop at them. Last but not least, the density and agglomeration of Panama is too small to create such a big highway investment when the exchange of goods is already done by ships which are required logistically to pass through both countries. The unique plus point in favour of the construction of the ground connectivity would be the increase on passenger commuting.
And about 80% of its extension is located in Panama and 20% in Colombia. However, in recent times
In terms of reduction of divisions, one of the most important positive effects for both is the reduction of taxes and having similar regulatory frameworks. Since, international transport companies could perceive them as just one country which in turn could boost the bilateral cabotage. Furthermore, the regulatory framework might encourage and facilitate new investments between both nations.
In terms of distances, the WDR (2009) presents as main objective, shorten distances between developing and developed areas with better connectivity. In this context, Panama has better transport infrastructure than any other country in Latin America and it can be considered as more developed in terms of logistic infrastructure. Hence, shorten distances between Colombia and Panama Panama Colombia has a vibrant cabotage between their ports and stops in Panama (Cartagena , Colon , Balboa and Buenaventura Buenaventura to Cartagena and from Cartagena to Buenaventura Panama City Cali and Medellin
In terms of density, the size of the country market represents a small number in Panama Panama City (1, 2 million) and Colon Panama City and in Bogota , we will see that the size of the market is much more important in Bogota than Panama City Panama
The above transformations cannot be completely understood if economic forces that influence on them are not analysed. In the case of the specialization, figures present that there is still scope to improve in terms of exchange of goods. Nevertheless, this specialization is not as important as the specialization in terms investments. Nowadays, Colombia is the second investor in Panama Panama invests in Colombia and is the fourth investor in Colombia
Those trends are confirmed by the current causes of bilateral migration which in turn can be supported by the new economic theories of labour. Nowadays, international migrants travel from country to country in order to invest and send remittances to their respective places of origin. On the other hand, the migration at the national scale has a slightly different purpose. Both Colombians and Panamanians migrate from rural to urban areas looking for better employments. These trends will be reinforced in Colombia by the TDLA while in the case of Panama by the expansion of the Panama Canal . This situation might increase the supply of labour in urban areas and eventually could improve the quality of life for many people. However, some exceptional cases could be presented like the Darien province in Panama
Finally, in terms of agglomeration economies, the Panamanian and Colombian cities present different agglomeration economies which in turn different externalities and level of hierarchies. The main two cities in terms of hierarchies are Panama City and Medellin Panama City Medellin Medellin has a strong complementarity ties with Buenaventura and Cartagena Panama , Medellin would use the Panama Canal because of its proximity and the facility to use just one port. However, Cartagena and Buenaventura Buenaventura in comparison to Cartagena
In a nutshell, these conclusions lead to answer that there are already conditions to have economic integration without ground connectivity in terms of commerce but not in the terms of migration. Therefore, the importance of ground connectivity is mainly based on cheaper costs for passengers transport. There are several supporting reasons. First, specialization will be reinforced mainly in terms of investment rather than commerce. Also, the size of the Panamanian market is small for Colombia Medellin but decreasing it for Cartagena and Buenaventura
Based on the findings above, there needs to be several further research work conducted on some key issues. First, it is essential to determine the very importance of connecting Medellin with Panama City Buenaventura which is currently the most important port in the Pacific Ocean . The second key area of research would be in relation to the scale of losses of other areas (cities) as a result of the direct link to Medellin Medellin Medellin and Panama in the event that Buenaventura loses competitiveness - therefore cabotage in South America may also be reduced. All these issues must be carefully analysed before constructing new port like the Interoceanic Canal
José Alberto Petit Petzoldt
Master in Social Sciences
Urban Economic Development
University College London
Director Gerente- GAMAN CONSULTING
[1] Nowadays, Panama has better transport infrastructure than any other country in Latin America and it can be considered as more developed in terms of logistic infrastructure.