initial to final input-output coefficients while ensuring that row and column totals sum up to the same value.<sup>11</sup> The final SAM is not shown here to conserve space, but is available from the author upon request.

The SAM captures only flow information about the economy and does not contain any data on stocks. Three types of stocks are particularly relevant for the CGE model in this paper: labor, capital, and debt. Information on labor volumes is obtained from the EPHPM survey; this is discussed in more detail in section 4.2 below. The ratio of total capital stock to GDP (a factor of 2.25) is obtained from Cuesta (2001), who cites various Honduras Central Bank (Banco Central de Honduras) bulletins as his source. Sectoral capital stocks are then derived by assuming that the rate of return to capital is the same in all activities. Public debt stocks are very high at 59 and 26 percent of GDP for foreign and domestic components, respectively, although the debt situation has improved somewhat since the 1980s, when total debt was well above 80 percent of GNI and debt service payments amounted to approximately one-third of total exports. Private external debt is negligible and is not considered in this analysis.<sup>12</sup>

# **4.2 Labor volumes and labor market segmentation**

In order to obtain data on labor volumes and wages, we return to the EPHPM. Using this survey data, we calculate the number of workers (both wage workers and self-employed) in four aggregate sectors—agriculture, manufacturing, private services, and public services—in the three relevant skill levels. Since we used the survey data to decompose aggregate labor value added, the survey wage levels are close to the results we obtain when dividing the SAM value added by the above labor volumes. We assume that average wages at a more disaggregated level (i.e., within agriculture, manufacturing, and private services) are equal to average wages for the aggregate sector. For example, average wages in bananas, sugar, coffee, livestock, etc., are the same as the average wages for agriculture as a whole. It is likely that imposing this homogeneity assumption is overly strict, but this is the simplest and clearest way of calculating labor volumes without access to additional data. Furthermore, this simplification has potentially important modeling benefits. Most CGE models, including the one used in this paper (see section 5 for more detailed model description), do not contain the theoretical structure necessary to explain sectoral wage differentials, and usually treat them as fixed wage premiums. As a result, any degree of labor mobility across sectors generates instant productivity gains when a worker moves to an occupation with a higher wage. This may be reasonable when a worker switches from farming to manufacturing or services, but is probably implausible when switching from growing bananas to coffee. Therefore, if one wishes to consider longer-term scenarios in which labor is likely to be mobile, it is best to keep inter-sectoral wage to a minimum.

The survey data show that the disparities between farm and non-farm wages at the same skill level are very large: an average farm worker can expect to earn about six times more if he or she switches employment to a non-agricultural sector. These large earnings differentials point to significant barriers to labor mobility and overall low labor market flexibility in Honduras. In order

> 11See Robinson et al. (1998) and Robinson and El-Said (2000). The approach is analogous to Bayesian estimation, and uses an optimization routine to minimize the discrepancies between the original unbalanced matrix _A_ and the unknown balanced matrix _A_<sup>_∗_</sup> subject to prior knowledge of certain elements of the _A_<sup>_∗_</sup> matrix. For the Honduras SAM, the adjustment factors (ratio between final and original coefficients) range from 0.10 to 9.53. The average adjustment factor is 1.84.

> 12See, for example, International Monetary Fund (2006), which seems to use the terms “external debt” and “external public debt” interchangeably.

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