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Panamanian students demonstrate documented considerable challenges in reading comprehension, but there is limited research on literacy development to inform policy and practice. Data from a random sample of schools in the province of Pana on school reading environment and teacher practice was collected using the ELLCO tool (n=29), along with second grade student evaluations on reading fluency and comprehension as well as psycholinguistic predictors (n=303). Hierarchical linear models indicated that reading fluency was predicted by language instruction, letter naming speed, and phonological awareness; whereas reading comprehension only by fluency, letter naming speed, phonological awareness, comprehension of grammatical structures and language comprehension. Finings should guide teacher training in order to increase their impact in student literacy.