How non-traditional are non-traditional exports? The experience of seven countries of the Caribbean Basin

Abstract

In the six Central American countries --Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, which make up the Central American Common Market, and Panama-- non-traditional exports increased in the 1970s, went down between 1980 and 1986 because of macroeconomic imbalances, armed conflicts and the crisis in the Central American Common Market, but grew once again in the second half of the 1980s and the early 1990s. Except in Nicaragua and Honduras, the share of such exports in total exports increased, reflecting the general trend towards modernization of the export structure and reduction of the vulnerability of the balance of payments to fluctuations in the prices of traditional exports. The qualitative improvement in the export structure has been only limited, however. On the one hand, the role of non-traditional exports of agricultural origin has been maintained and in many cases has increased, while on the other hand, none of the countries have markedly increased the share of industrial exports that make intensive use of human capital or technology. Among the factors which have most influenced the performance of non-traditional exports are investment, the real exchange rate and, in the case of Costa Rica, fiscal incentives. Non-traditional exporters in Central America and the Dominican Republic have been more sensitive than their traditional counterparts to changes in relative prices. In order to promote exports, governments must maintain competitive real exchange rates and, since the size of the exportable supply is strongly dependent on investment, they must also maintain macroeconomic stability and apply policies that encourage domestic saving.