Impact of the Panama Canal expansion on the Panamanian economy

The Panama Canal is currently in the process of a major expansion effort. After the new set of locks is opened in 2014, significantly larger ships can traverse the canal. This paper examines the economic impact of the canal expansion on the economy of Panama. The analysis is performed through an Input-Output (IO) model. The analysis is further developed through the use of a computational general equilibrium model that allows the exploration of the interactions of different variables using a second set of data for 2008. The results are then calibrated with variables produced by the 2006 IO model. A gravity model formulation is then used to estimate the economies of agglomeration and network effects that result from the canal on the Panama Canal Trade in Logistics Services Cluster. The implications of the study are significant for the canal, the government and country itself. Just as any business needs to estimate its return on investment to align its budget, Panama needs to understand the economic impact of the canal expansion. In addition, the results of the research can be very useful for developing countries interested in estimating the impact of their ports and maritime industry on growth and development in the future.