Volume 44, Number 174,

July-September 2013

July-September 2013

Central America: The Urgency of Coherent

Commercial Diversification

Commercial Diversification

WORKING HYPOTHESES AND METHODOLOGY

Working Hypotheses

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.

Methodology

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:

(1) |

Where *y _{it}* is a linear function of

Expression (1) captures the effect of each country by adding a series of ( *N-1*) dichotomous variables ( *d* ) to the *U _{it}* structure. The mathematical expression of

(2) |

where: and *ε _{ it}* is a random variable.

As such, the error term *U _{it}* is the sum of a fixed component (α

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

(3) |

Or, the equivalent below, expanding the sum:

(4) |

In the fixed effects model, the individual effects *α _{i}* may be correlated with the

The *β* estimators are calculated using the following expression:

(5) |

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 48, Number 191, October-December 2017 is a quarterly publication by the Universidad
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