Trade Liberalisation, Market Deregulation and Agricultural Performance in Central America

One frequently encounters the argument that trade liberalisation and deregulation of domestic markets in developing countries result in increased incentives for agriculture. This proposition is considered for the Central American countries, all of which passed through fundamental policy change either in the 1980s or 1990s. After characterising the policy regimes in each country over various periods, the analysis moves to an inspection of agricultural trade performance. The evidence indicates that liberalisation of foreign trade and deregulation of domestic markets has not been associated with improved agricultural performance. It is suggested that the failure of agriculture to respond positively to policy changes can be in part explained by an unfavourable trend in world prices of the region’s major tradable commodities.