draining development.pdf - Khazar University

150 Draining Development?Geography has been a huge obstacle to economic integration andmodernization and a main obstacle to effective central state presence inlarge parts of the country. 3 As a result, Colombia has a large informaleconomy, significant land concentration, and a wide gap between formalinstitutions (constitution and laws) and the local culture.The informal economyColombia has a large informal economy that is a principal obstacle tothe enforcement of economic laws and facilitates money launderingactivities. While there is no agreement on the definition of economicinformality, Schneider and Klinglmair (2004), using a combination ofstatistical procedures, estimate that the informal economy accounted for39.1 percent of gross domestic product (GDP) in Colombia in 1999/2000.A World Bank study that involved the measurement of informality usingemployment classifications found that, between 1992 and 2005, independentworkers increased their share in total employment in Colombiaby 17.3 percent (Perry et al. 2007). It also found that the share of informalindependent workers, plus informal wage earners, in total employmentin Colombia in 2006 was 66.8 percent. These are workers who donot comply with many legal requirements, contribute little if at all to thesocial security system, and do not have many social benefits.A low level of penetration of banking services also creates an environmentconducive to economic lawbreaking and money laundering. Datafor 1990–99 and 2000–05 show that, in the first period, deposits represented14 percent of gross national product, which increased to 22 percentin the second period (Rojas-Suárez 2006). These shares are aboutone-third of the corresponding shares in the developed countriesincluded in the survey and about one-half of the shares in Chile. Similarly,the number of bank offices and automated teller machines (ATMs)per 100,000 inhabitants is low in Colombia: about half the number inBrazil, Chile, and Mexico. These numbers for Colombia are only about10 percent or less of the numbers found in the developed world. A moredetailed study shows that 26.5 percent of the Colombian populationresides in municipalities that do not have banking services (Marulanda2006). These municipalities cover large areas of the country that have astrong guerrilla and paramilitary presence. Data from large urban areasshow that only 26.4 percent of the adult population has deposits in or