Price elasticity of Central American agricultural exports

The economies of the Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua); are largely dependent on four major traditional export products: bananas, coffee, cotton and sugar. The share of these products in total Central American exports, which is still close to 50%, only started to decline in the late 1980s. This paper explores the determinants of these four products' production trends, and the importance of non-price-related economic and social factors and of man-made and natural disruptions is fully acknowledged. However, an attempt is made to use the ECLAC-Mexico database to estimate the supply price elasticities for the four products over the 1960-1990 period, testing simplified linear regression models which include only output prices as the relevant explanatory variables. No significant statistical relations could be found between production and price in the cases of bananas and sugar, while cotton production appears to react to a certain extent only to year-to-year price changes. Supply elasticities could be calculated only for coffee, and they turned out to be quite low. The paper therefore concludes that the potential for export expansion in small, poor countries by means of orthodox policies affecting mainly macroeconomic prices should not be overestimated.