Article 1

Determinants of economic growth in Honduras: multivariate 2

regression analysis 3

Roldán Villela and Juan Jacobo Paredes 4

Faculty of Graduate, Universidad Tecnologica Centroamericana (UNITEC), Tegucigalpa 11101, Honduras 5

* Correspondence: roldan.villela@unitec.edu 6
7

Abstract: This research aims to evaluate the relationship of the determinants of economic growth 8
on real GDP in Honduras from 1990 to 2020. Using a multivariate regression analysis that 9
incorporates four groups (models) of determinants. The time series were subtracted from the World 10
Bank online databases. The first model refers to the economic sectors that make up the GDP 11
according to the value-added method, it is evident that industry, services and agriculture have a 12
positive and significant relationship on real GDP. The second model, involving the key 13
determinants, shows that only infrastructure and labor force have a positive and significant relation 14
on economic growth. As for the third model, which alludes to education, it is found that tertiary 15
school enrollment has a positive and significant correlation with real GDP, while primary school 16
enrollment has a negative and significant correlation with economic growth. The fourth model 17
contains the non-economic determinants, the findings reveal that Voice and Accountability, Political 18
Stability and Rule of Law have a negative and significant relationship with economic development, 19
while Government Effectiveness and Control of Corruption are positively and significantly 20
associated with economic growth. The majority of determinants are inconsequential or show a 21
negative relationship on economic growth. 22

Citation: Villela, Roldán, and Juan

Jacobo Paredes. 2022. Determinants Keywords: economic determinants, economic growth, multivariate regression 23
of economic growth in Honduras: 24
multivariate regression analysis.
Economies 10: x.
https://doi.org/10.3390/xxxxx 1. Introduction 25

Academic Editor: Firstname Economic growth and its determinants have been a subject widely discussed by 26
Lastname economists, for politics and economic theory for decades this has been a very notorious 27
topic. There is a wide debate regarding the economic models and policies that developing 28
Received: date
countries should implement to achieve levels of well-being similar to those of rich countries. 29
Accepted: date
Researchers such as (Aghion & Howitt, 1992; Barro, 1996; Rebelo, 1991; Romer, 1990), are 30
Published: date
the ones who created the bases around this topic, evidencing variations in their own 31
Publisher’s Note: MDPI stays approaches. 32
neutral with regard to jurisdictional Honduras faces multiple conflicts in the educational, social, economic, political and 33
claims in published maps and
environmental sectors, all of which manifest and reinforce one another. Inadequate 34
institutional affiliations.
economic growth that has had a minimal impact on reducing inequalities and poverty. 35
Public finances are highly informal and unbalanced. Over the last 30 years, the rule of law 36
has been systematically weakened, with recurring governance crises affecting the 37
Copyright: © 2022 by the authors. population and undermining the state's ability to respond to growing social demands 38
Submitted for possible open access
(PNUD, 2021). 39
publication under the terms and
In 2020, Honduras' real GDP was US$22.18 billion, the second lowest in Latin America, 40
conditions of the Creative Commons
surpassing only Nicaragua (World Bank, 2022c). In the same year, its GDP per capita 41
Attribution (CC BY) license
recorded US$2,239, also making it the country with the second lowest per capita income in 42
(https://creativecommons.org/license
the region (World Bank, 2022d). For its part, the human capital index was 0.48 according to 43
s/by/4.0/).
(World Bank, 2022e), surpassing only Guatemala. While, its Human Development Index 44

Economies 2022, 10, x. https://doi.org/10.3390/xxxxx www.mdpi.com/journal/economies

Economies 2022, 10, x FOR PEER REVIEW 2 of 13

(HDI) is 0.621, which ranks 137th among 191 countries. Situating it in the lowest place in 45
Central America (UNDP, 2022). In addition, the Corruption Perceptions Index (CPI) gives it 46
a score of 24 and ranks it 157th out of 180 countries (Transparency International, 2022). These 47
indicators and others make Honduras a country with low production and income, poor 48
productivity and human development, and plagued by corruption. 49
This study aims to place the importance of the determinants of economic growth on 50
the government agenda, exposing the relevance that this information offers to the State. This 51
is in order to make decisions aimed at increasing production through investments and 52
sound public policies. The results of this study provide empirical evidence also to 53
international cooperation and academics who could consider the results obtained from this 54
research or continue with similar research. In this context, the objective of this study is to 55
evaluate the relationship between the determinants of economic growth and real GDP in 56
Honduras between 1990 and 2020. 57

2. Literature review 58
This section will discuss some of the most recent research related to the determinants 59
of economic growth. In Ghana Ho & Iyke, (2020), investigated the effects of the 60
determinants of economic growth. Using a Solow economic growth model augmented 61
over the period 1975 to 2014. Their results reveal that in the short run government 62
spending and foreign aid have positive effect on growth. While in the long run human 63
capital and foreign aid positively favor production. In turn, (R. Sharma et al., 2018), using 64
an autoregressive distributed lag (ARDL) model examines the effects of selected 65
determinants on economic growth in India. The period of analysis is from 1971 to 2016. In 66
the long run, their findings reflect that foreign aid, government final consumption 67
expenditure and foreign direct investment positively and significantly influence economic 68
growth. Meanwhile, exchange rate and human capital do so negatively. (Basuki et al., 69
2020), used a dynamic panel regression model, to analyze the effect of determinants on 70
economic growth in Indonesia. The period of analysis was from 2008 to 2017. The results 71
of their research show that in the short run population negatively affects economic 72
growth. While in the long run growth is affected by the number of people, the poor, health 73
budget and foreign investment. 74
On the other hand, (Pegkas, 2018), through the vector autoregression (VAR) and 75
autoregressive distributed lag (ARDL) methods explored during the period 1970 to 2016 76
the relationship between economic growth and several factors in Greece. The results 77
indicate that in the long run, government and private consumption, investment and trade 78
openness positively affect economic growth. On the contrary, public debt and population 79
growth impact it negatively. Likewise, (Am Marcel, 2019), conducted a study on the 80
determinants and economic growth in Benin, during the years 1970 to 2017. He utilized 81
time series and implemented the ordinary least squares technique. The findings 82
demonstrate that foreign direct investment and the consumer price index have positive 83
and significant impact on growth. In contrast, trade openness and government spending 84
have significant but negative effect. Moreover, (Waheed & David, 2021), analyzes the 85
impact of various determinants of economic growth in Pakistan. Employing the 86
cointegration method ARDL over a period from 1977 to 2019. The results obtained indicate 87
that capital, inflation, exchange rate and tax revenue have significant relationship on 88
economic growth in both long run and short run. 89
Meanwhile, (Gumede & Bila, 2022), explore the impact of key drivers of the South 90
African economy over the period 1980 to 2019. To test the long-run relationship they use 91
the ARDL and vector error correction (VEC) methods. The main outcomes reveal that 92
consumption, exports and investment are the most important determinants of economic 93
growth in South Africa. (Naftaly, 2021), empirically examines the determinants of 94
economic growth in 47 counties in Kenya. The research span was from 2014 to 2017. 95
Through the ARDL method, he identifies that in the long run, public investment, 96
government consumption, electricity infrastructure, quality of governance and 97
Economies 2022, 10, x FOR PEER REVIEW 3 of 13

institutions are the main determinants of economic growth. While in the short term, 98
human capital and budget utilization are the decisive determinants of growth. 99
Furthermore, (Sitorus, 2022), analyzed the effect of various determinants of economic 100
growth in 4 ASEAN member countries (Brunei Darussalam, Indonesia, Malaysia, and 101
Singapore). Utilizing panel data regression analysis method, between 2010 to 2019. It finds 102
that exports, tourist visits, literacy rate, and life expectancy negatively affect economic 103
growth in these countries. Only imports affect it positively. 104
Whereas, (Rofiqoh, 2022), performs an analyze on the determinants of economic 105
growth in China. Using time series from 1980 to 2020 and multiple regression with the 106
ordinary least squares (OLS) method as a tool of analysis. The conclusions reveal that the 107
unemployment rate has a negative and significant effect on economic growth. By contrast, 108
industry and the level of exports are positively and significantly associated with growth. 109
The literature review demonstrates that there is no general consensus among 110
researchers as to which variables should or should not be included in the studies that are 111
carried out, nor on the effects that the determinants have on economic growth. This will 112
depend on each region or country and its own circumstances. Given the above and the 113
relatively little information published for Central American countries such as Honduras, 114
it is important to conduct a study that incorporates various economic and non-economic 115
factors that influence growth. 116

3. Methodology 117

This study uses multivariate regression equations that take an aggregate approach to 118
four determinant groups of economic growth to test the effects on real GDP in Honduras. 119
Regression models falls into the group of the most popular statistical methods in the social 120
sciences (Hutcheson & Sofroniou, 1999). Multivariate regression models attempt to define 121
the behavior of the response variables as a function of several regressors. This model 122
makes it possible to treat each of the equations independently of each other as a univariate 123
linear regression (Ganesh, 2010). It is a method widely used by (Barro, 1996). There are 124
studies that have developed several models of determinants of economic growth with 125
similar characteristics to those used in this research (Majumder, 2022; Próchniak, 2011; 126
Sissoko & Sloboda, 2020; Vedia-Jerez & Chasco, 2016). Four models were developed in 127
this research. 128
129
The first model (Model 1) refers to the relationship that economic sectors have on the 130
Real Gross Domestic Product, which is expressed as follows: 131
132
𝐺𝐷𝑃 = 𝑓(𝑆𝑒𝑟𝑣𝑖𝑐𝑒𝑠, 𝐴𝑔𝑟𝑖𝑐𝑢𝑙𝑡𝑢𝑟𝑒, 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦) (1) 133
134
Natural logarithm is used on both sides of the model, so the equation is expressed 135
econometrically as follows 136
137
𝐿𝑛(𝑅𝑒𝑎𝑙 𝐺𝐷𝑃) = 𝛼0 + 𝛼1 𝐿𝑛(𝑆𝑒𝑟) + 𝛼2 𝐿𝑛(𝐴𝑔𝑟) + 𝛼3 𝐿𝑛(𝐼𝑛𝑑) + 𝜇 (2) 138
139
In this research, real GDP is used as a proxy for economic growth. According to the 140
value-added method, GDP is decomposed to establish correlations with respect to sectors 141
services (Ser), agriculture (Agr) and industry (Ind). For the three economic sectors as well 142
as the real GDP, a period of analysis from 1990 to 2020 is used. The variables included in 143
this model are expressed at constant 2010 US$ prices. The time series used were extracted 144
from the World Bank's online databases. This model was used in studies conducted by 145
(Ahmad et al., 2016; Rahman et al., 2011; Uddin, 2015) 146
147
The second model (Model 2) refers to the determinants of economic growth 148
identified as key in the literature and their contribution to Real Gross Domestic Product, 149
which is expressed as follows: 150
Economies 2022, 10, x FOR PEER REVIEW 4 of 13

151
𝐺𝐷𝑃 = 𝑓(𝐶𝑎𝑝𝑖𝑡𝑎𝑙, 𝐿𝑎𝑏𝑜𝑟 𝐹𝑜𝑟𝑐𝑒𝑠, 𝐸𝑥𝑝𝑜𝑟𝑡𝑠, 𝐼𝑚𝑝𝑜𝑟𝑡𝑠, 𝐼𝑛𝑓𝑟𝑎𝑒𝑠𝑡𝑟𝑢𝑐𝑡𝑢𝑟𝑒, 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑠𝑒𝑟𝑣𝑒, 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑡, 𝑇𝑟𝑎𝑑𝑒) (3) 152
153
Natural logarithm is used on both sides of the model, so the equation is expressed 154
econometrically as follows: 155
156
𝐿𝑛(𝑅𝑒𝑎𝑙 𝐺𝐷𝑃) = 𝛽0 + 𝛽1 𝐿𝑛(𝐶𝑎𝑝) + 𝛽2 𝐿𝑛(𝐿𝐹) + 𝛽3 𝐿𝑛( 𝐸𝑥𝑝) + 𝛽4 𝐿𝑛(𝐼𝑚𝑝) + 𝛽5 𝐿𝑛(𝐼𝑛𝑓) + 𝛽6 𝐿𝑛(𝑇𝑅) + 𝛽7 𝐿𝑛(𝐼𝑛𝑣) + 157
𝛽8 𝐿𝑛(𝑇𝑟𝑎) + 𝜇 (4) 158
159
Real GDP continues to be used as a proxy variable for economic growth. Capital 160
(Cap) is expressed by Broad Money, % GDP, for labor force (LF) the population between 161
15 and 64 years old is used, infrastructure (Inf) is measured by telephone lines per 100 162
people as did (Sahin et al., 2014). Exports (Exp) and imports (Imp) of goods and services 163
are denoted as a % of GDP, as is trade (Tra) and also investment (Inv) for which gross 164
fixed capital formation is used. Total reserves (TR) are presented at current prices in US$. 165
The period of analysis is from 1990 to 2020. The time series used were extracted from the 166
World Bank's online databases. Equivalent and similar models were performed in the 167
studies of (Batrancea et al., 2021; Oyebowale & Algarhi, 2020; Ramanayake & Lee, 2015) 168
169
The third model (Model 3) analyzes the effect of education and investment in 170
education on real gross domestic product, which is expressed as follows: 171
172
𝐺𝐷𝑃 = 𝑓(𝑆𝑐ℎ𝑜𝑜𝑙 𝑒𝑛𝑟𝑜𝑙𝑙𝑚𝑒𝑛𝑡, 𝑝𝑟𝑒𝑝𝑟𝑖𝑚𝑎𝑟𝑦, 𝑆𝑐ℎ𝑜𝑜𝑙 𝑒𝑛𝑟𝑜𝑙𝑙𝑚𝑒𝑛𝑡, 𝑝𝑟𝑖𝑚𝑎𝑟𝑦, 𝑆𝑐ℎ𝑜𝑜𝑙 𝑒𝑛𝑟𝑜𝑙𝑙𝑚𝑒𝑛𝑡, 𝑠𝑒𝑐𝑜𝑛𝑑𝑎𝑟𝑦, 173
𝑆𝑐ℎ𝑜𝑜𝑙 𝑒𝑛𝑟𝑜𝑙𝑙𝑚𝑒𝑛𝑡, 𝑡𝑒𝑟𝑡𝑖𝑎𝑟𝑦, 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒 𝑜𝑛 𝑒𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛) (5) 174
175
Natural logarithm is used on both sides of the model, so the equation is expressed 176
econometrically as follows: 177
178
𝐿𝑛(𝑅𝑒𝑎𝑙 𝐺𝐷𝑃) = 𝛾0 + 𝛾1 𝐿𝑛(𝑆𝑐ℎ𝑜𝑜𝑙𝑝𝑟𝑒) + 𝛾2 𝐿𝑛(𝑆𝑐ℎ𝑜𝑜𝑙𝑝𝑟𝑖) + 𝛾3 𝐿𝑛(𝑆𝑐ℎ𝑜𝑜𝑙𝑠𝑒𝑐) + 𝛾4 𝐿𝑛(𝑆𝑐ℎ𝑜𝑜𝑙𝑡𝑒) + 179
𝛾5 𝐿𝑛(𝐺𝑜𝑣𝑒𝑑𝑢) + 𝜇 (6) 180
181
To understand the effect of education-related variables on economic growth (Real 182
GDP), school enrollment rates (gross %) at all educational levels, preprimary (Schoolpre), 183
primary (Schoolpri), secondary (Schoolsec) and tertiary (Schoolter) are included in this 184
model, and government expenditure on education % GDP (Govedu) is also included in 185
the analysis. The evaluation period of this model is from 1990 to 2020. Annual time series 186
were obtained from the World Bank's online databases. Several authors have done similar 187
research, among them (Adelakun, 2011; Barro, 1991; Ochilov, 2012) 188
189
The fourth model (Model 4) evaluates the relationship of non-economic 190
determinants on Real Gross Domestic Product, which is expressed as follows: 191
192
𝐺𝐷𝑃 = 𝑓(𝑉𝑜𝑖𝑐𝑒 𝑎𝑛𝑑 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦, 𝑃𝑜𝑙𝑖𝑡𝑖𝑐𝑎𝑙 𝑆𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦, 𝐺𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡 𝐸𝑓𝑓𝑒𝑐𝑡𝑖𝑣𝑒𝑛𝑒𝑠𝑠, 𝑅𝑒𝑔𝑢𝑙𝑎𝑡𝑜𝑟𝑦 𝑄𝑢𝑎𝑙𝑖𝑡𝑦, 193
𝐶𝑜𝑛𝑡𝑟𝑜𝑙 𝑜𝑓 𝐶𝑜𝑟𝑟𝑢𝑝𝑡𝑖𝑜𝑛, 𝑅𝑢𝑙𝑒 𝑜𝑓 𝐿𝑎𝑤) (7) 194
195
Natural logarithm is used on both sides of the model, so the equation is expressed 196
econometrically as follows: 197
198
𝐿𝑛(𝑅𝑒𝑎𝑙 𝐺𝐷𝑃) = 𝛿0 + 𝛿1 𝐿𝑛(𝑉𝐴) + 𝛿2 𝐿𝑛(𝑃𝑆) + 𝛿3 𝐿𝑛(𝐺𝐸) + 𝛿4 𝐿𝑛(𝑅𝑄) + 𝛿5 𝐿𝑛(𝐶𝐶) + 𝛿6 𝐿𝑛(𝑅𝐿) + 𝜇 (8) 199
200
This model makes it possible to evaluate the correlation between non-economic 201
determinants and real gross domestic product (Real GDP), using the 6 dimensions 202
developed by the Worldwide Governance Indicators (WGI). The analysis covers the 203
period from 1996 to 2020 as a result of data availability. (Moshiri & Hayati, 2017; 204
Economies 2022, 10, x FOR PEER REVIEW 5 of 13

Radulović, 2020; Xu et al., 2021), they also used models equal to the one used in this 205
research. 206

4. Results 207
Table 1 of this section presents the results of the four regressions performed, 208
corresponding to each of the models described previously. The R-squared values are all 209
above 0.9, which allows us to establish that the models used are robust and adequate, so 210
we proceed to the interpretation of the coefficients. 211

Table 1. Regression results, coefficients 212

Variables Model 1 Model 2 Model 3 Model 4

Dependent variable: Real GPD
Services .3837277**
Agriculture .1880216**
Industry .360978**
Capital .0249595
Labor forces 4.029315**
Exports .9637825
Imports 1.614131
Infrastructure .1026062**
Total reserve -.0278388
Investment -.0208766
Trade -2.391339
School enrollment, preprimary .1615353
School enrollment, primary -1.185088**
School enrollment, secondary -.0303163
School enrollment, tertiary .5569641**
Government expenditure on education .0807841
Voice and Accountability -.7208817**
Political Stability -.4259947**
Government Effectiveness .2691849**
Regulatory Quality .1166522
Control of Corruption .3894969**
Rule of Law -.3623502**
Observations 31 31 31 22
R-squared 0.9997 0.9961 0.9854 0.9583
**p < 0.05
The first model (Model 1) analyzes the relationship between economic sectors and 213
real GDP. It is confirmed that the three sectors are decisive in economic growth, since 214
there is a correlation. In Honduras, the tertiary sector accounted for 57% of aggregate 215
production in 2020 (World Bank, 2022h). This percentage is well below the average for 216
Latin America and the Caribbean (68%). The Services (Ser) with a coefficient of .3837277 217
(p-value = 0.00) is correlated with economic growth. This aspect is key since this sector 218
has a high dose of human capital, which, due to the increase in productivity, sustains 219
economic growth in a better way (Jola, 2013). This result is consistent with the findings of 220
(Tufaner, 2021) in Turkey and (Chihana & Kunda, 2017) in Zambia. The direction of state 221
resources and policies dedicated to fostering this sector is questionable. The government 222
has historically targeted and prioritized the primary and secondary sectors to the 223
detriment of services. 224
Economies 2022, 10, x FOR PEER REVIEW 6 of 13

With respect to the Agriculture sector (Agr) with a coefficient of .1880216 (p value = 225
0.00) there is evidence of a correlation with economic growth. This coincides with the 226
results found by (Bashir et al., 2019) in Indonesia and (Khan et al., 2020) in West Bengal 227
(India). This sector stands out (constant prices) for being the third most important 228
economic activity in the country below manufacturing industries and financial 229
intermediation (Banco Central, 2022a). However, despite being a sector privileged by the 230
government in terms of public policies and budget allocation, it may not have the expected 231
performance or effect on the economy. 232
The secondary sector is the second largest contributor to gross domestic product 233
(World Bank, 2022f). The value-added industry (Ind), with a coefficient of .360978 (p value 234
= 0.00) is related to economic growth. These results are aligned with the studies of (Abbasi 235
et al., 2021) in Pakistan. Two sub-activities associated with the industry (constant prices), 236
Food Products and Manufacture of Textile Products according to the national accounts 237
reported by the (Banco Central, 2022b) are particularly highlighted. The State should 238
encourage the strengthening of the industrial sector, albeit in more specialized and 239
sophisticated sub-activities. In this way, it could generate conditions that favor a 240
sophisticated and gradual transformation towards the service sector (Dossani, 2018). 241
The second model (Model 2) studied in this research addresses the main 242
determinants of economic growth considered key by the economic literature. In general, 243
the picture is discouraging; only two variables out of eight evaluated are correlated with 244
real gross domestic product. Capital (Cap) with a coefficient of .0249595 (p value = 0.752) 245
has no statistical relationship with economic growth. This result is consistent with the 246
studies conducted by (Tegegne, 2021) and (Razia & Omarya, 2022) who found no long- 247
term relationship between these variables in Ethiopia and Palestine respectively. 248
The labor force (LF) is highly positively correlated with economic growth in 249
Honduras. The coefficient of 4.029315 (p value = 0.00), reflects the importance of 250
employment in aggregate production on real GDP. Similar results were found by (Soava 251
et al., 2020) in European Union countries and (Huu Cung & Hai Hung, 2020) in Vietnam. 252
Although this association is strong and flattering, the influence of the migrant population 253
on the national economy must be considered. 254
Regarding exports (Exp) and imports (Imp), the vast majority of studies show that 255
both are crucial to achieve economic growth (Raghutla & Chittedi, 2020). However, 256
neither of these two estimators are correlated with real GDP, this could be due to the fact 257
that the external balance is negative in Honduras during the research period (World Bank, 258
2022b). Exports (Exp) show a coefficient of .9637825 (p value = 0.535), while Imports (Imp) 259
have a coefficient of 1.614131 (p value = 0.404). This finding is equal to that found by 260
(Bakari & Mabrouki, 2017) in Panama. 261
Infrastructure (Inf), particularly telecommunications services play an important role 262
in economic growth, however, their effect will depend on the country's level of 263
development (Ward & Zheng, 2016). It is denoted that this variable is correlated with real 264
GDP, but weakly, with coefficient of .1026062 (p value = 0.05). (Melnyk et al., 2019), at the 265
global level and (Adeleye & Eboagu, 2019), in Africa estimated the effect of telephone lines 266
per 100 people on economic growth. The results as in Honduras reflect that there is 267
statistically significant association. 268
As for total reserves (TR), this has a negative effect on economic development, with 269
a coefficient of -.0278388 (p value = 0.240). This assertion coincides with that of (Shkolnyk 270
& Koilo, 2018), who finds a negative correlation between total reserves and GDP in 271
Ukraine. Total reserves are an important indicator of confidence in an economy and its 272
governance, their management is vital on economic growth (Morakabati, 2020). The 273
government of Honduras should be cautious with its current policy regarding the use of 274
these resources, since it is already dragging a very critical situation around this 275
determinant. 276
Investment (GFCF) has a negative influence on economic growth. Reflecting a 277
coefficient of -.0208766 (p value = 0.772). This finding is akin to that found by (Jalil et al., 278
Economies 2022, 10, x FOR PEER REVIEW 7 of 13

2021) in Malaysia and (Cheung et al., 2012) in an analysis conducted in 188 countries. 279
Investment is an essential element to achieve economic growth, the increase of this 280
potentiates the creation of more jobs (Meyer & Sanusi, 2019). The Honduran state should 281
aim to create policies that improve the business environment, in addition to promoting 282
the diversification of the economy. 283
On the other hand, trade openness (Tra) holds a relevant role in achieving economic 284
development (Frankel & Romer, 1999). Although to achieve this, countries must produce 285
and export diverse and quality products if they want to obtain sustained rates of economic 286
growth (Huchet-Bourdon et al., 2018). This has no statistical relationship with real GDP, 287
but its coefficient of -2.391339 (p value = 0.495) makes it necessary to take it into 288
consideration. Analogous results were found by (Khobai et al., 2017) in Nigeria. 289
The third model (Model 3) examines the links between education and economic 290
growth. Education is one of the principal determinants of a nation's economic success 291
(Barro, 1991). School enrollment, preprimary (Schoolpre) has no effect on economic 292
growth, its coefficient is .1615353 (p value = 0.157). (Magnuson & Duncan, 2016) indicates 293
that raising enrollment in preschool education, is important because it could generate 294
economic benefits in adults. In Honduras, it is not an academic requirement to complete 295
pre-primary education prior to entering primary education. In 2020, the enrollment rate 296
at this level was only 39%, far from the 77% reported for the Latin American and 297
Caribbean region (World Bank, 2022g). This relationship is the same as that found by (Dao 298
& Nguyen, 2020) in Vietnam. For its part, school enrollment, primary (Schoolpri) with a 299
coefficient of -1.185088 (p-value = 0.010) evidence a negative and significant relationship 300
with real GDP. Meanwhile, school enrollment, secondary (Schoolsec) also has a negative 301
relation, revealing a coefficient of -.0303163 (p-value = 0.770). This effect should cause 302
alarm among decision makers. For that matter, a one-point increase in the enrollment rate 303
in primary education would produce a -1.18 point decrease in real GDP. Governments, 304
households and development partners, in that order, are the main funders of education. 305
Their contributions differ significantly across the income groups of the countries 306
conducted by the World Bank (Al-Samarrai et al., 2021). Governments are the largest 307
funders of education in all income groups, while the direct contribution of households to 308
education spending tends to be higher in poorer countries. In lower-middle income 309
countries (case of Honduras), households can finance up to 31% of total education 310
expenditure (Al-Samarrai et al., 2021). The state is unable to efficiently cover the necessary 311
expenses for the enrollment of children and youth. Families would be assuming the 312
expenses derived from this, in addition to the costs associated with the partial functioning 313
of educational centers. (Abbas, 2001) in his study conducted in Pakistan, obtained 314
comparable results in terms of primary enrollment. While (Adawo, 2011) obtains the same 315
correlation in Nigeria in respect of secondary enrollment. As for, school enrollment, 316
tertiary (Schoolter) it recorded a coefficient of .5569641 (p-value = 0.00). Although its link 317
is statistically significant on economic growth, at the same time it is very weak. (Maneejuk 318
& Yamaka, 2021), in his research conducted in the ASEAN-5 countries (Thailand, 319
Indonesia, Malaysia, Singapore, and Philippines) concludes that the enrollment rate in 320
tertiary education is essential for future growth and sustainability. Similar outcomes were 321
found by (Siddique et al., 2018) in upper middle-income countries and also by 322
(Chowdhury et al., 2018) in Bangladesh. 323
Government expenditure on education (Govedu) obtained a coefficient of .0807841 324
(p-value = 0.713). This shows that the investment made by the state in education has no 325
statistical effect on economic development. This coincides with the recent results reported 326
by (Villela & Paredes, 2022) precisely in Honduras. The government should evaluate the 327
efficiency and allocation of the budget, particularly with regard to a marked disproportion 328
between current and capital spending. 329
The fourth model (Model 4) evaluates the level of relationship between non- 330
economic determinants and economic growth. (Acemoglu, 2007), recognizes the role of 331
government efficiency, institutions, political, administrative and social systems in the 332
Economies 2022, 10, x FOR PEER REVIEW 8 of 13

development of countries. Voice and accountability (VA), political stability (PS) and rule 333
of law (RL) reflect coefficients of -.7208817 (p-value = 0.00), -.4259947 (p-value = 0.007) and 334
-.3623502 (p-value = 0.00) respectively, indicating a negative and significant behavior on 335
economic growth in Honduras. Most of the researches that have studied the relationship 336
of the components of public governance and that have used the indicators provided by 337
Worldwide Governance Indicators (WGI) highlight the positive influence of these on 338
economic growth (Bouoiyour & Naimbayel, 2012) and (Fayissa & Nsiah, 2013). As well as 339
the findings of this study. (Zubair & Khan, 2014), found a negative relationship in political 340
stability and rule of law in Pakistan on economic growth. While (Alexiou et al., 2020), 341
finds a negative association in the short run between voice and accountability and real 342
GDP. In an analysis conducted in 27 post-socialist economies. The government will need 343
to think deeply about governance. Elements such as freedom of expression, in addition to 344
distrust in electoral bodies, coupled with the widespread perception of political instability 345
and skepticism of the population and investors in public institutions, would be impeding 346
economic and social development. In contrast, control of corruption (CC) and government 347
effectiveness (GE) display the opposite conduct. With coefficients of .3894969 (p-value = 348
0.00) and .2691849 (p-value = 0.018) each. Both are positively correlated with economic 349
growth, however, it should be noted that their relationship is at a low level. Corruption 350
negatively affects the attraction of international investment. Growth is adversely affected 351
by the uncertainty that this flagellum causes (Cieślik & Goczek, 2018). Likewise, efficient 352
governments supply adequate physical and social infrastructure. They avoid confiscatory 353
taxes, enforce private property rights and promote laws that boost the private sector 354
(Alam et al., 2017). Like in Honduras, (C. Sharma & Mitra, 2019), provides evidence of a 355
positive effect between the control of corruption and economic growth in low and lower 356
middle-income countries. Furthermore, (Bayar, 2016), demonstrates a positive and 357
significant relation between both variables in the countries of the European Union. The 358
state ought to exercise rigorous mechanisms to reduce the multiple modalities of 359
corruption, creating laws with dissuasive and harsh penalties. The installation of the 360
international commission against corruption would be an accurate contribution. It should 361
also focus on social spending and significant improvement of the existing deteriorated 362
public services. Finally, regulatory quality (RQ) presents a coefficient of .1166522 (p-value 363
= 0.272). Therefore, this dimension of governance is found to have no relationship with 364
real GDP. Well-defined regulations facilitate the entry of international companies into a 365
market. This implies that regulatory quality would have an effect on capital, trade and 366
financial openness (Nagaraj & Zhang, 2019). This result is in line with that obtained by 367
(Radulović, 2020) in the Southeast European countries (SEE) members of the European 368
Union in the short term. 369

5. Discussion 370
The results of this research suggest in general terms that the scenario is discouraging. 371
Despite this, some estimators that contribute to the Honduran economy are identified. Of 372
the value-added sectors, the manufacturing industry has been key to the diversification 373
of the Honduran economy in recent decades. It has facilitated the penetration of new 374
technologies and fostered job creation. (Kattan et al., 2019), recognize the role of this sector 375
as a strength that Honduras possesses with respect to the rest of the countries in the 376
region. They add that Honduras has shifted its export base to the secondary sector. In 377
return, governments have granted considerable tax exemptions and have been highly 378
permissive with respect to the questionable conditions to which workers are subjected. 379
The primary sector, despite being the smallest contributor of the three economic sectors 380
to real GDP in Honduras, generated 29% of total employment in 2019 (World Bank, 381
2022a). Coffee is the main crop in Honduras, this has led it to become one of the main 382
producers worldwide. (Herrell et al., 2017), shows that there is a positive correlation 383
between the prices received by producers and their participation in coffee certification 384
programs. The latter has been increasing in recent years. Therefore, it could be inferred 385
Economies 2022, 10, x FOR PEER REVIEW 9 of 13

that this effect would be contributing to the national economy. Countries require adequate 386
infrastructure and broad government support in order to benefit from significant growth 387
in the agricultural sector. 388
(Martínez, 2019), conducted a similar study in the countries that make up the 389
northern triangle (Honduras, Guatemala and El Salvador). Among his findings he states 390
that the population is the main driver of the economies of these countries. This result 391
coincides with the one found in this research. Even so, it is likely that Honduras is wasting 392
its human capital, essentially due to two factors, high migration flows and low 393
productivity. 394
As for the effect of education on economic growth, enrollment rates at all levels and 395
public spending on education were analyzed. The results are dramatic, the higher 396
education enrollment rate is the only one that contributes to growth. For its part, 397
government expenditure on education has no correlation with economic growth in 398
Honduras. This finding refutes the results of the research conducted by (Zuniga et al., 399
2018), who finds a positive relationship between economic growth and public spending 400
on education. 401
(Azam, 2022), carried out research that explored the impact of governance and 402
economic growth in 14 countries in Latin America and the Caribbean, including 403
Honduras. The results reveal that corruption negatively affects economic growth, while 404
political stability and government effectiveness stimulate it. Of the dimensions of 405
governance considered in both studies, only government effectiveness displays matching 406
results between the studies. Good governance is essential to attain economic growth. To 407
achieve this, Honduras should restructure its weak public institutions and take radical 408
measures aimed at transparency and accountability of public resources. 409
The absence of reliable information and data in public institutions creates enormous 410
challenges. Furthermore, there is little formal research based on empirical evidence that 411
focuses solely on Honduras in this area. It is hoped that this research will serve as a 412
resource for future researchers. Considerations about the determinants of economic 413
growth in Honduras provide revealing evidence. New lines of research related to the 414
effect of irregular migration and remittances should be explored as determinants of 415
growth in Honduras. In the same way, and according to the literature, it is necessary to 416
understand the relationship of economic growth with estimators such as the exchange 417
rate, public debt and military spending, for example. 418
419
Author Contributions: Conceptualization, R.V. and J.J.P.; methodology, J.J.P.; software, R.V.; 420
validation, R.V. and J.J.P.; formal analysis, R.V.; investigation, R.V.; resources, R.V.; data curation, 421
R.V.; writing—original draft preparation, R.V.; writing—review and editing, R.V. and J.J.P.; 422
visualization, R.V.; supervision, J.J.P. All authors have read and agreed to the published version of 423
the manuscript. 424

Funding: This research received no external funding. 425

Data Availability Statement: Not applicable 426

Acknowledgments: We thank the Universidad Tecnologica Centroamericana and its team for their 427
support. 428

Conflicts of Interest: The authors declare no conflict of interest 429

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