Portsmouth Business School

Thesis summary

The international community has been seeking more effective ways to devise strategies to help the developing countries. Since the 1960s there has been an increasing belief that regional integration may be one way to acheive higher levels of economic development, and the European Union has probably become the best example of integration during the last decades. In this context, the Central American region is seeking to improve its integrationist approach. This thesis aims to assess the situation of the Central American Common Market (CACM) - to not only propose improvements in competitiveness but to simultaneously determine its effects on the welfare of the participants. It is intended that the results would make an important contribution to our understanding of CACM - during its second  phase. We will devise an appropriate analytical framework based on Customs Unions (CUs) theory and carry out a qualitative analysis of the Central American continuus dating from the pre-Columbian era to trends towards economic and trade integration during the colonisation period (and the post- colonial era) up to the formation of the CACM. A gravity model will be produced in order to explain the intraregional trade flows (1981-2003). Moreover, in order to determine whether the CACM fostered trade creation or trade diversion, we adopt an econometric approach based on the Balassa method (1988-2007). We also analyse the agricultural sector in order to compare economic dependency on natural resources - a factor underlying the creation of the CACM. Finally, an approach centred on policy coordination of the fiscal system completes our study.