8 - The foundations of modern export-led growth, 1954–60

Summary

The expansion of the Central American economies in the first decade after the Second World War represented the final phase of the traditional exportled growth model based on coffee and bananas. Unfavourable developments in the markets for these exports after the end of the Korean war pushed Central America towards a new growth model; this was to be based on the diversification of agricultural exports and the promotion of intra-regional trade in manufactured products, and the bases for the model were firmly laid by the early 1960s. The model had elements common to all five republics, but its distributive impact was affected in each country by a combination of resource endowments and policy initiatives.

Export diversification had begun in the 1940s, but was overshadowed by high prices for coffee. By the end of the 1950s, however, the export list had been expanded to include cotton, sugar and beef and these, together with coffee and bananas, would constitute Central America's future ‘traditional’ exports. The development of these products, facilitated by strong state support, created new, powerful pressure groups who combined with coffee growers to safeguard the interests of agricultural export-led growth.

Export agriculture (EXA) competed with domestic use agriculture (DUA) for scarce resources. This competition created tensions in which the state usually sided with EXA, although there were exceptions and the relationship between the two branches of agriculture was by no means mechanistic.