THE CENTRAL AMERICAN COMMON MARKET: AN ANALYSIS Of WELFARE EFFECTS FROM 1970 TO 1984
Patrick C. Flower
Walton T. Wilford
As the turbulence of the 1980s subsides and peace returns to Central America, there is renewed interest in economic integration among the five republics that originally comprised the Central American Common Market ( Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua).
Integration efforts in the region began in the 1950s and evolved into the formally established Central American Common Market (CACM) in 1960. Throughout this movement toward integration, the concept of "balanced" development and industrialization of each member's economy was the primary goal. 1 + ̰ Prior to the actual formation of the CACM in 1960, there were agreements to establish common import duties and a regime for establishing the distribution of regional industries in a manner that would equalize free trade benefits among the group. 2 + ̰/, 3 + ̰/ These agreements were followed in 1960 by the General Treaty of Economic Integration, which established free trade among the members, endorsed the common external tariffs and the Regime for Integration Industries, and created the Central American Bank for Economic Integration (CABEI). It is noteworthy that, since there was never an agreement regarding the free mobility of factors, the integration is more properly termed a customs union rather than a common market. 4 + ̰/
In many respects, the CACM enjoyed a high level of success during its first decade. Trade in the CACM expanded rapidly, with intraregional imports growing by nearly 600 percent between 1960 and 1967, while total imports expanded by about 200 percent during the same period. 5 + ̰/Per capita income increased substantially in all five countries ( Guatemala: 13.6 %, El Salvador: 21.7 %, Honduras: 13.1 %, Nicaragua: 43.0 %, and Costa Rica: 18.0 %). There was also an impressive increase in foreign private investment in the region, from $22.6 million in 1960 to $80.7 million in 1967. 6 + ̰/
However, by the late 1960s, there was increasing discontent among Honduras, Nicaragua, and Costa Rica that they were receiving an inequitable