What if Central America joined? Would it be an economic powerhouse?

To this day, many wonder what would become of Central America if their countries were united. What would be the political and economic weight of this hypothetical country? What would have happened if the Federal Republic of Central America, founded in 1824, had endured over time?

Two hundred years after becoming independent from Spain and Mexico, that is, two centuries later, in countries like Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica, many citizens wonder if a united Central America would have been an economic power, a nation solid and prosperous.

There are data that suggest that, indeed, a united Central America would have been an economic power to take into account. The set of these five nations, all united, would bring together a population of over 46 million people, with their annual gross domestic product (GDP) equivalent to 180,000 million euros (200,000 million dollars). And we must know that we are talking about a territorial extension that would be around 420,000 square kilometers.

Federal Republic of Central America

Furthermore, if we include Panama in the equation, the country would not only increase its population, its GDP, and its territorial extension, but, in the same way, the hypothetical country would become, for example, the first exporter of pineapples. in the world. In addition, in the same way, this hypothetical nation could be the second largest exporter of bananas on the planet, as well as the third in products so demanded by society such as coffee.

However, if these calculations seem so promising, what happened to frustrate a project of political union such as the Federal Republic of Central America? Why have they not forged commercial ties that allow them, today, to combine their economic power? What would be the benefits if the Central American countries joined their economic muscle?

In Economipedia we have analyzed it, let’s see!

A short-lived Federal Republic of Central America

“The Federal Republic of Central America, from its inception, encountered problems in its attempt to consolidate.”

After becoming independent from Spain, Mexico, led by Agustín de Iturbide, annexed important extensions of territory that today correspond to the States of Honduras, Guatemala, Costa Rica, El Salvador and Nicaragua. However, the fall of Iturbide in 1823 brought with it the independence of Central America, which was constituted as a federal republic, uniting the five economies that made up said republic under the same constitution and the same flag.

The leadership of the Federal Republic of Central America fell to Francisco Morazán. However, the division was more than evident among the peoples that made up that State. The entire political spectrum, from liberals to conservatives, was mired in deep confrontation.

As a consequence, in 1839 the Federal Republic of Central America was dissolved. In addition, incidentally, Francisco Morazán himself was executed by firing squad.

Finally, it should be noted that the Federal Republic of Central America, in which supporters of the union and defenders of its dissolution clashed, not only had to suffer serious internal divisions, but also did not have international recognition.

Thus, Great Britain, for example, the nation with which they maintained the highest volume of trade, never recognized the Federal Republic of Central America.

In summary, the Federal Republic of Central America, from its inception, encountered problems in its attempt to consolidate itself. Well, with what the internal fractures between rulers could not, the United Kingdom ended, as well as the many obstacles that the nation project had to face in order to survive.

What if Central America were to unite again?

“It is clear that the economic indicators would improve, but the political union would also translate into an improvement in social and development indicators.”

Historians, political analysts, and economists seem to agree that a political and economic union would bring great benefits to Central America.

A strong and united state would bring with it a transparent regime organized in the form of a liberal democracy and a free market economic system. In this way, Central America would enjoy greater political relevance not only in America, but throughout the world. Furthermore, Central America would be a political actor to be taken into account in large international forums such as the UN.

However, it can be said that these advantages would not only be political, but also economic.

As we previously explained, the sum of the GDP of Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica would be around 180,000 million euros (200,000 million dollars). In other words, unification could bring increased wealth.

Another aspect to highlight is that the endowment of natural resources in Central America would improve.

Thus, the new country that emerged would have more wood, precious stones and farmland. From the ecological point of view, the hypothetical republic would concentrate 10% of the world’s biological wealth.

Therefore, it is very likely that with the union the economic indicators would improve, but there could also be an improvement in the social and development indicators. Thanks, for example, to the good level of literacy that Costa Rica maintains, which could contribute to raising that of the rest of the States.

So why isn’t Central America moving towards economic integration?

The true reality of Central American integration

“To achieve the promising prosperity of a united Central America, it is not only necessary for these countries to reach a common position when signing trade agreements.”

Around 1960, Costa Rica, Guatemala, Honduras, Nicaragua and El Salvador started a process of economic integration. It was the Central American Common Market (CACM). The purpose was to consolidate a customs union, giving rise to a free trade zone and agreeing with its members on a commercial policy.

However, the reality has been discouraging, because if we take the 2019 data from the Inter-American Development Bank (IDB), intraregional trade only accounts for 26.3% of Central American exports. We would be facing a low level of intraregional trade if we compare it with the Asian case, which reaches 46%, let alone if we are talking about Europe, where intraregional trade stands at 65%.

The reason for this low level of trade among Central American countries is explained by the fact that non-tariff barriers still persist. In other words, everything is due to administrative obstacles, technical requirements and sanitary and phytosanitary regulations.

Transportation has also been a handicap in Central American economic integration, as logistics costs are high and the region’s infrastructure is seriously lacking.

The absence of a common trade policy is also hurting Central America economically. In other words, the Central American countries have not joined forces when negotiating a common foreign tariff, but instead reached bilateral agreements with intraregional trading partners. All this has led them to a weak position in commercial matters.

And, as many analysts also affirm, we can also consider disunity as the factor that allowed the development of some countries, such as Costa Rica, which knew how to manage the situation better than others. This hypothetical union generates fears among those who subscribe to this theory, since they consider certain economies a drag on the development of others.

Likewise, it is worth highlighting the power of Guatemala, which, as a capital, concentrated a large part of the wealth of this country. Privileges that reached the capital of the “new nation”, generating tensions in territories that, having integrated into this republic, felt abandoned.

Therefore, in order to achieve the promising prosperity of a united Central America, it is not only necessary for these countries to reach a common position when it comes to signing trade treaties and for their governments to bet decisively to deepen economic integration, but also to Furthermore, those tensions that, caused by the numerous cultural and economic divergences, as well as by other factors, maintain the territories that in this hypothetical nation would coexist must be eliminated.

And you? What do you think of a united Central America?

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