Economic Impact of Panama Canal to United States

Panama Canal is among the largest investments of the last century and has brought significant economic returns for the United States. The Panama Canal project opened a shortcut for the delivery of the products such as petroleum from the west to United States’ east coast especially California.

Panama Canal Aerial View
Panama Canal Aerial View

Panama Canal had several benefits to Panama as well. It facilitated the independence of panama from Columbia .It also facilitated improved sanitation and public health facilities built in the Panama City and the areas surrounding the canal.

Economically, the canal was a boost for the panama as the country received 10 million dollars as payment for the land used to construct the canal and an annual fee of 250,000 dollars. This essay discusses how the Panama Canal transformed the panama country as well as the world.

Panama Canal Size, Construction, Cost, Benefits and Revenue

Panama Canal strategically links the Pacific and the Atlantic Ocean. The journey to build the link between the pacific and the Atlantic oceans had been explored for centuries by the Spanish, the Dutch, the French and the Americans who built the canal. Vessels can pass through the canal in the shortest time possible. This saved both time and expense of good delivery (Dumitrescu, 76).

Panama Canal construction
Panama Canal construction

The canal was built by President Theodore Roosevelt and led to the independence of the new Republic of Panama from Columbia with exchange for the 10-mile land strip for the canal. The agreement also included the initial payout of 10 million at that time and annual fee of 250,000 dollars paid to the Panama government from the United States.

The agreement for the construction of Panama Canal gave the United States full control of the panama canal and the government established the U.S government established the Panama Canal authority, which was responsible, for the management and the control of the canal.

After beginning operation, the canal shortened the distance between the two vast oceans by 8000 nautical miles. It formed a mega engineering project for the time.

The first attempt to build the canal was from the French who later failed to accomplish their mission. The greatest challenge through building the canal was the numerous deaths that faced the workers of the canal, which led the French to abandon their plans of digging the canal.

The Panama Canal project formed a modern form of transport between the two lakes. Consequently, it generated millions of revenues from the charges levied to the passing ships at 90 cents per ton after it opened for business in 1914.

It takes ships up between 8-10 hours to cross the canal. The one-millionth ship crossed the canal in 2010. After 100 years of operation, between 13000- 14000 ships cross the canal yearly. Its revenues have surpassed $1.8 billion and charges have raised over $450,000.

Economic Impacts and Construction of Panama Canal

The Panama Canal had varying benefits especially for the Panama and the United States governments. Economists note that the Panama Canal promoted panama economic growth economy from 1915 to 1930(Maurer & Yu, pg. 4).

In addition, the largest foreign invest met of the united states at the time earned the country an initial payment of the 10 million dollars and 250,000 dollars as an annual fee for the canal (Michael, pg. 3&4). Although the payment was, a small fraction compared to the money that the United States earned from the project, it was beneficial for the country economy

 Despite its benefits, the Panama Canal did not directly benefits the panama country during construction due to American policies set on the canal use. The United States government establishment of the Panama Canal authority banned the direct sale of goods or service to the transiting ships using the canal from the Panamanians and the Canal Zone as well.

The estimated revenue per person for the usage of the canal services were $ 44 dollars and it employed over 12,852 people, which was an equivalent of the 7% of the total panama active pollution during that time (Maurer & Yu, pg. 15). The constitution of the new country established that at least 6.5 million of the initial payout from the United States government payment for fixed income securities.

The United States put a requirement that all the transcontinental shipping passing through the canal be carried by ships flagged by the United States. In addition, the United States controlled and the canal and charged levies for all the ships that used the canal.

Most of the shipping using the canal transported petroleum products from California. This makes the United States the biggest beneficiary of the Panama Canal. The United States financed the construction the entire project and therefore had to benefits from the services offered by the canal.

The American benefited from the canal through every cargo that used its services irrespective cargo origin or destination. The canal made the importation and exportation of the good to United States less costly especially for the goods headed to the countries west coast from Europe (Huebner, web).

How Panama Canal Contributed to Panama’s Independence

The Panama Canal contributed to the independence of the panama country from Columbia. The Columbian disagreement with the United States government forced the U.S to support the independence of panama as a sovereign country with an agreement they concede to the building of the canal owned by the United States.

The American therefore indirectly influenced the uprising and the revolution that gained panama independence from Columbia.

Source of Construction Labour for Panama Canal

Panama did not contribute the canal construction labour. This is because the availability of skilled labour from panama was too scarce and expensive. The United States therefore imported cheap labour from West Indies.

Estimates indicate that the panama labour earned four times more compared to the average American worker during the time of construction of the canal (Maurer & Yu, pg. 17). To reduce the cost of the projects, the builders of the canal opted therefore for more cheap labour by establishing working tiers, which were the gold roll, the silver role and the unskilled role.

The gold role included the skilled labour especially from the United States. While the silver roll comprised of Spanish and West Indies and included machine operators and carpenters. The government of the United States closed them gold roll tier to non-Americans and with pressure of the unions allowed Panamanians to the tier.

However, the number employed in this tier from the panama was only 16 people (Maurer & Yu, pg. 18). To cover their labour, the American turned to importing labour rather than increasing wages for the workers who worked in the Panama Canal.

This led to the increased cost of living causing the workers to strike on numerous times in demand for increased wages. The country turned to banning the immigration of non-Spanish speaking blacks to panama country in order to reduce immigration fueled by increased demand for labour.

Ironically, the tires created by the Americans restricted on job training to the Americans and therefore panamas could not rise up the radar for better wages.

Solutions for Panama Canal’s Labour Challenges

To counter the high cost of living, the united state s allowed the Panama Canal employees special chain stores for subsidized goods imported from the United States. The government of the United States also built workers housing to cater for the canal workers who led to a shortage in panama housing.

It also introduced plantations for fruits and vegetable production for local consumption as well as beef and port farms. These plantations expanded to supply these commodities to the miners of coal after the canal was completed. However, in 1936, the management of the canal allowed the direct sales of Panamanian goods to the passing vessels as well as in the canal authority zone.

This increased the revenue earned by panama o n the canal. In addition, the panama workers began to work as domestic workers from the canal employees gaining more revenues. The canal also opened the tourism industry for panama because of the large number of tourists who came to see the canal.

Health Benefits of Panama Canal

There were also indirect benefits of the canal to the Panamanians after the construction of the canal. The United States government supported the health and sanitations sector through by building sewerage systems, which in way benefited the panama people.

In addition to the benefit during the public health, the United States built the port facilities within the canal, which improved the well-being of the panama people. Although the panamas were charged for the construction of these health systems, it did benefit the people.

The country also enjoyed a protected status by the United States and therefore increased its confidence in the global scale to borrow for financing its other projects. However, panama did not utilize this option and limited borrowing during the period. It was also largely assured of the peace and security from external threats and had the opportunity to concentrate other matters of the economy.

The ant malaria campaign to reduce the death rate of the canal employees also extended to the Panamanian people. The number of deaths related to malaria and yellow fever and sanitation fell consummately by 40 % (Maurer & Yu, pg. 23).

How Panama Canal Improved Transport and Global Trade

The Panama Canal benefited the world in a number of ways. First, it created a shorter route that linked the Atlantic and the pacific trade route. It shortened the initial route that took the southern tip of South America. This significantly shortened the distance for ships from West coast and economists estimate that the shipping cost reduced by 31% due to the Panama Canal.

The canal proved its economic importance during the First World War because it facilitated the movement of goods from west American coast to Europe. This increase in the traffic during the war remained even after the war ended.

Who Currently Controls Panama Canal and its Expansion?

Although the canal was opened in June 14 1914, it did not enjoy a substantial traffic until the 1920’s. This resulted from the internal disputes from the United States and the Great Britain, which were fueled by the United States action to turn the canal to toll free for United States vessels using the canal.

The United States gave control of Panama Canal to the Republic of Panama in 31 December 1999. The Unites States relinquished their claim on the canal under president Jimmy Carter marking decade long negations on the transfer of the canal to the panama authorities.

Major expansions works are scheduled to begin in the future to allow the canal handle bigger ships. One major expansion project took place in 2007 at a cost of $5.25 billion

Works cited

Dumitrescu, George Cornel. “Major projects that influence world trade.”Global Economic Observer 2.2 (2014): 76.

Huebner, G. G. “Economic Aspects of the Panama Canal.” The American Economic Review5.4 (1915): 816-29. Web.

King, Michael. “Crossing Over: Development & Inequality in Panama’s Dual Economy.”

Maurer, Noel, and Carlos Yu. “The big ditch.” (2011).

Maurer, Noel, and Carlos Yu. “What Roosevelt Took: The Economic Impact of the Panama Canal, 1903–37.” Harvard Business School, Working papers (2006): 06-041.