Central American integration: Its costs and benefits

This article sums up the benefits and costs of Central American economic integration. Increased economic growth, industrialization based on intra-industry trade, and greater competition in a broader subregional market represent significant benefits for the Central American countries, although for the most part these benefits are concentrated in the more developed countries. The costs of integration stem from the inter-country monetary flows occasioned by currency arbitrage, currency substitution, and the high transaction costs associated with inconvertibility. The elimination of these costs would have other costs, however, in the form of the reduction of national autonomy with regard to macroeconomic policy as a consequence of multilateral coordination and monitoring.