Export promotion policies in Central America

Ten years ago the member countries of the Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua); began to abandon the "inward-oriented development" policy they had been applying for decades. They are now stimulating non-traditional exports by lowering tariff barriers, unifying exchange rates, and giving exporters access to intermediate and capital goods at international prices. Some governments have also granted direct subsidies in the form of tax credits for goods exported outside Central America. This article reviews these policies and analyses their effects on the exports of each of the five Central American countries, with special attention to the possibility that the subsidies granted in respect of goods exported outside the Central American Common Market may induce exporters to give preference to extra-regional rather than regional markets.