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Employment Policy in an Open Economy: Paraguay (2002-2005)

This research project was carried out jointly with the Centro de Análisis y Difusión de la Economía Paraguaya (CADEP) and was financed by the International Development Research Centre (IDRC) and the Inter-American Development Bank (IADB).

The general objective of the project was to lay out an integrated strategy for "growth with employment and equity" for Paraguay. The selection and prioritization of topics reflected this aim. The analytical task included: (i) the identification of sectors or types of firms with the greatest promise to combine growth effects (direct plus indirect) and good job creation; and (ii) the identification of the conditions under which those potential growth‑employment motors would perform best and, in particular, the policies which could contribute to the creation of those conditions.

The project was divided into nine modules in order to examine in greater depth the areas considered to be essential and/or helpful in the design of an overall employment strategy. Getting at the employment‑equity effects of growth from different sources involved understanding both general labour market functioning (Module 1) and the special employment implications of growth in the promising sectors/activities, which included components of agriculture and manufacturing and the sectors most closely linked to them, and such partially overlapping categories as tradable (given the openness of the economy), small and medium enterprise and rural non‑farm activities (Modules 2-5). Identifying the conditions propitious for healthy growth involved understanding the processes of physical and human capital formation and technological change (the "growth mechanism") and ways in which policy impinged on these processes (Modules 6-7). Since investment and technological change are to a considerable degree sector specific, the objective was to focus on these processes in the most promising sectors/activities. The analysis of more general economic policy (macroeconomic, financial, trade, etc.) was also important since it affects the growth environment. In part, the implications of alternative strategies in these various policy areas emerged in the study of the growth mechanisms. Though less central to the plan, it was desirable to undertake more general analyses within the main policy areas and therefore these were also included among the research objectives of the project (Modules 8-9).

Preliminary research results were presented at a conference in Asuncion in August, 2004. Most background papers to the project are available as CIS/CADEP Working Papers.