Volume 44, Number 174,
July-September 2013
Central America: The Urgency of Coherent
Commercial Diversification
Juan Sebastián Castillo, Esther Aguilera and Carmen García Cortijo

Working Hypotheses

In the context described above, in order to propose a working hypothesis, the level of diversification/ commercial concentration, cooperation with major partners and intraregional commerce had to be taken into account.

The authors assumed the following hypotheses:

  • H1: The concentration of commerce in the United States is a systematic risk factor.
  • H2: Trade with China has not led to benefits and is still un-explored terrain, while growing commerce with the European Union is still a promise to be fulfilled.
  • H3: There may be a hypothetical virtuous cycle between product diversification and markets and growth.
  • H4: In these circumstances, intraregional trade with Latin America as a whole constitutes a space that should grow significantly and have an important impact on the major national macro-scale.


In order to prove the proposed hypotheses, panel data econometric models were estimated with fixed effects. In fixed effects models, the intercept captures behavioral differences between individual units. This is expressed analytically as follows:


Where yit is a linear function of K explanatory variables, i is the i -th transversal unit ( i =1, 2,…,N ) with t observations over time ( t =1,2,…,T ) and Uit is the error term.

Expression (1) captures the effect of each country by adding a series of ( N-1) dichotomous variables ( d ) to the Uit structure. The mathematical expression of Uit is:


where: and ε it is a random variable.

As such, the error term Uit is the sum of a fixed component (αi), which does not change over time but does vary from one country to another, and a random component (ε it) with zero mean white noise properties and constant variance.

When expression (2) is substituted into expression (1) of the model to estimate, the following results:


Or, the equivalent below, expanding the sum:


In the fixed effects model, the individual effects αi may be correlated with the Xit explanatory variables and strict exogeneity is required for Xit and εit so that the estimators are consistent.

The β estimators are calculated using the following expression:


Where the parentheses hold the deviations of the variable with respect to its arithmetic mean.

The econometric model (1) was adopted in specific ways in accordance with the proposed working hypotheses, and was estimated using data from 1993 and 2009, both years inclusive, taken for the five countries that make up Central America.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 195 October-December 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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