Volume 44, Number 174,
July-September 2013
Central America: The Urgency of Coherent
Commercial Diversification
Juan Sebastián Castillo*, Esther Aguilera** and Carmen García Cortijo ***
Date received: November 30, 2012. Date accepted: March 14, 2013

This work analyzes the behavior of Central American foreign trade, describing how its productive structure and the geographic and mercantile concentration affect commerce in the region. The main objective of this research is to analyze the current panorama of trade in Central American using fundamental variables, such as the level of diversification, linkage with major partners and the role of intraregional commerce, as well as econometric analysis of panel data, and to evaluate the correlation with major macroeconomic measurements. Initial results show that geographic diversification and intraregional commerce are the basic pillars of economic growth in the region.

Keywords: Central America, Commercial Diversification, Intraregional Commerce, Panel Data Models.

For commercial purposes, the Central American region is composed of five countries: El Salvador, Honduras, Nicaragua, Guatemala and Costa Rica. The region has a population of nearly 39 million residents and occupies a geographical space that accounts for approximately 2.1% of Latin America. On December 13, 1960, these countries came together to create the first Latin American integration system, known as the Central American Common Market (cacm).

This framework continues today, but the legal and operational mechanisms designed to promote regional integration have undergone changes. The intraregional integration process achieved a free trade zone with the Central American Tariff System (sac) and the common external tariff, except for Costa Rica, which has been gradually incorporated. Since the beginning of the 1990s, Central American countries have sought to accelerate their economic development by implementing policies to promote commerce and signing Free Trade agreements (Zapata et al., 2003: 3; Diéz and Villalobos, 2010: 1).

According to the Inter-American Development Bank (idb) (2012: 3-10), international commercial activity in Central America has seen favorable evolution in recent years. From 2005-2010, exports grew at an average annual rate of 8%. Imports also had dynamic growth in this time period, expanding at a rate of 7.37%. Even so, commercial flows were seriously affected in 2009 as a result of the global crisis.

In terms of weight, the United States is the main partner to the region (32.05% of all exports). Intraregional commerce follows (26.1%), brought about in large measure by greater international insertion and liberalization, as indicated by Herrero and Jiménez (1992: 95) and eclac (2009: 3). Moreover, intraregional commerce represents a considerable portion of Central American gdp (Durán and Lo Turco, 2010: 98). Studying this topic sheds light on the influence of the common market and the convenience of external associations (Monge, 2003: 6).

The European Union still has an important share in buying Central American products (13.4%). The growing presence of the Chinese market is also significant. In 2010, China was in fourth place among partners that sell the most in the region (7.06%), and in ninth place among nations that import (1.81%).

It is also useful to emphasize the importance of Central American commercial exchanges among countries with which they hold free trade agreements, either individually or as a region (United States, Mexico, Panama, Canada, the Dominican Republic, China). The participation of countries with fta out of all commerce for the region in 2010 reached 71.5% of exports from Central America to the rest of the world.

The major products exported are as follows: coffee, bananas, sugar, integrated circuits and parts of machines. These areas represent 28.58% of total exports. Intraregional exportable goods focus on manufactured merchandise and certain agricultural industry products.

In light of the above and the dynamic nature of Central American commerce, this research aims to analyze if this behavior has driven growth for the countries that comprise the Central American bloc. Historically, and also in more recent studies, such as Dollar (1992: 523-544), BenDavid (1993: 653-679), Sachs and Warner (1995: 1), Edwards (1998: 383-398) and Frankel and Romer (1999: 379-399), Fujii et al. (2005: 125-126), Chena (2008: 59-82), Suchlarick and Solomou (2009: 1), the positive influence of commercial activity on an economic zone is contrasted with its revenue growth. But there has been no detailed discussion to separate the effects of intraregional commerce from global trade.

Consequently, this work aims to study the role of international commerce as well as intraregional trade. For the former topic, the methodology was to propose a general trade model, accompanied by a sub-model and a simulation model. For the latter case, an intraregional model of commerce was defined.

Panel data econometrics was the basic system used for analysis, as it has been applied in previous trade research (Zapata et al., 2003: 40; Herzer and Nowak-Lehmann, 2004: 9; Bebczuk and Berrettoni, 2006: 3; Aditya and Acharyyaa, 2011: 1). In our case, the methodology was qualitatively adapted, where the endogenous variable is gdp and exogenous variables included: a) the basket of exported products (raw materials, extractive products and manufactured goods); b) major partners (US, EU) and China since 2002; c) the effect of the Treaty Law signed with the US in 2004 and d): the effect of the 2007 crisis.

*   Professor at the Higher Technical School for Agronomist Engineers at the Universidad de Castilla-La Mancha, Spain.
        E-mail: sebastian.castillo@uclm.es;

**    Professor at the Center for International Economic Research at the Universidad de la Habana, Cuba.
        E-mail: eaguilera@RECT.UH.CU;

***  Researcher of the Economic Institute for Regional Development of Food and Agriculture at the Universidad de Castilla-La Mancha, Spain.
        E-mail: mariacarmen.gcortijo@uclm.es.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 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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