Binding Constraints on Economic Growth in Cambodia: A Growth Diagnostic Approach

Type Working Paper - CDRI Working Paper
Title Binding Constraints on Economic Growth in Cambodia: A Growth Diagnostic Approach
Issue 80
Publication (Day/Month/Year) 2013
This study applies the growth diagnostic approach, developed by Hausmann, Rodrik and
Velasco in 2005, to identify binding constraints on Cambodia’s growth after the crises in 2008
and 2009. Growth was strong during 1999-2009 at an average annual rate of 9.0 percent, but
then slowed to 6.7 percent in 2008 and dropped to 0.1 percent in 2009, before rebounding
in 2010 posting 5 percent. Average annual inflation rate was between 1 and 7 percent during
2002-2007, but jumped to 25 percent in 2008. Overall consumer prices then declined bringing
inflation down to 4.0 percent in 2010. Rebound in export has also been evident after the crisis,
but trade deficit persists. Budget deficit remains, but is under control.
Garments, tourism, construction and agriculture, particularly paddy rice, have retained
their status as key drivers of growth, though a slower pace of expansion was evident in the
construction sector and renewed efforts to promote paddy rice production and milled rice
export emerged in mid 2010. On the binding constraints to growth, the study finds that cost of
finance has not seemed to be constraint as of 2009. Even though real lending rate rose from
-9.0 percent in 2008 to 19.5 percent in 2009, the highest among ASEAN members, the increase
resulted primarily from the surge in consumer prices. Credit to the private sector continued to
grow by 5 percent in 2009 despite sluggish economic activities during the year, but lower than
the 77 percent in 2007 and 50 percent in 2008.

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