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Distributed By PB-224 371 AGRICULTURAL DEVELOPMENT IN CENTRAL AMERICA: ITS ORIGIN AND NATURE Rodolfo Quiros-Guardia Wisconsin University Prepared for: Agency.,for International Development January 1973' DISTRIBUTED BY: National Technical Information Service U. S. DE'ARTMENT OF COMMERCE 5285 Port Royal Road, Springfield Va. 22151 PB 224 371 A Research Paper lp LAND TENURE CENTER University of Wisconsin-Madisor Madison53706 Reproduced by NATIONAL TECHNICAL INFORMATION SERVICE US c,..nli.Id,OepaiellnSt VA.ci Commrie 22151 This paper is essentially an abbreviated version of the first'four chapters of the author's Ph.D. thesis, "Agricultural Development and Economic Integration inrCentral, America" (Department of'Agri|cultural Economi.cs, University of Wisconsin, Madison, 1971. -January 1973 R.P- iJo, 49 AGRIC'LTURAL DEVELOPMENT III CENTRAL AMERICA: ITS ORIGI! A,4,D IATrIRE .by Rodolfo Qu iros-Guardia* *The author is presently Director of the Central American Program fo Export Development (PROMECAly a specialized agency of the Permanent Secretariat of the General Treaty of Central America Economic Integration (SIECA) and of the Central American Economic Integration .ank (.CIV'. All views, interpretbtions, recommendations, and conclusions are those of the author and not necessarily those of supporting or cooperating organ izat ions. I Go= 3. lecipient's Accession No. BIBLIOGRAPHIC DATA 11.Repot' No. 12. SHEET LA'52-630.9728-Q8 I , i-r'- IA 4. Title and Subtitle 4 - 5. Report Dat 1973 "AGRICULTURAL DEVELOPMENT IN CENTRAL AMERICA: ITS ORIGIN AND January 6. NATURE" 78. Performing Organization Rept. 7. Author(s) No. Rodolfo Quiros-Guardia 10. _____________UitNo 9. Performing Organization Name and Address 10. Project/Task/Work Unit No. Land Tenure Center I. Contract/Grant No. University of Wiscoinsin A.o/cdGrant2No. Madison, WLscon.=in 53706 AID/csd-2263-211(d) 12. Sponsoring Organi',ation Name and Address 13. CoveredType of Report & Period o'- State Department. Agency for International Development 14. 20523 Washington, D.C. 15. Supplementary Notes 16. Abstracts "The Central American economy historically has been divided into a traditional system oriented to the domestic market and a modern sector geared for export to world markets. After 1850 the doctrine of economic liberalism continued this trend by concentrating land ownership in the export sector; the rise of export economies led to economic growth but limited development. Exports failed to stimulate technological change and investment. This unilateral dependence on the performance of a single sector has been one of the weaknesses of Central American economics. After 1950 favorable conditions in international markets and rapidly increasing productivity renewed the impetus for agricultural exports. The overall performance of the agricultural sector in the con­ temporary economy has been successful in maintaining a considerable degree of external balance and in inducing internal growth and economic stability.--0n the other hand it has been unable to create sufficient employment or to prevent income and output dif­ ferentials from increasing. The fruits of technical and economic progress have accrued largely to the export sector. Programs to correct this condition should include tech­ nical assistance and marketing aids for the small farmer. Land reform, low-cost colo­ riization, and the organization of small farmers and wage laborers into effective eco­ nomic and political forces are also needed. 17b. Identifiers/Open-Ended Terms 17c. COSATI Field/Group 630 19.. Security Class (This 21. No. of Pages 18. Availability Statement Report) 20. Security Class (This 22. Price PaRUNCLASSIFIEDPajge 7 USCOMMOdC14952-P72 FORM NTIS-35 -(REV. 3o721 TABLE OF CONTENTS INTRODUCTION 1 CHAPTER I - THE HISTORICAL FOUNDATIONS OF THE DUAL ECONOMY 2 Part I - The Colonial Period 2 'Influence Of Geographical Factors 2 Colonial Policies in Central America 3 Dualism in.the Colonial Economy 7 Part II - Post-Colonial Development: .1850-1950 13 Influence of Economic Liberalism 13 Economic Role of Land Policies 16 Supporting Factors of Duality: The Traditional Sector 20 Supporting Factors of Duality: The Export'.Sec+- ' 24 Commercial Development of Export Production 27 -Instability in the Export Economy 39 Long-term Economic Development: A Summary Interpretation 43 CAHPTER II - AGRICULTURAL DEVELOPMENT IN THE CONTEMPORARY CEN- TRAL AMERICAN ECONOMY: EXTERNAL BALANCE AN1D INTERNAL GRO1TH 46 Role and Performance of the Agricultural Export Sector 147 Internal Growth of the Central American Economy: 1950-1967 55 Population, Employment and Economic Growth 59 Summary and Conclusions 65 CHAPTER III - AGRICULTURAL DEVELOPMENT IN THE CONTEMPORARY CENTRAL AMERICAN ECONOMY: STRUCTURAL AND FUNCTIONAL ASPECTS 67 Part. I - The Structural Organization of Agriculture 67 Part II - The Functional Organization of Agriculture 74 Economic, Institutional and Technical Interrelationships 74 ,Agricultural Duality and the Orientation of Public Policy 78 Resource Competition in Agricultural Duality: Some Case Studies 81 Production Effects of the Development Pattern in Agriculture 94 Income, Employment, and the Nature of Technological Progress in Export Agriculture 97 Part III - Implications for Agricultural Development Policy 107 INTRODUCTION This study is an attempt to define the origin and-nature of the main development problems in Central American.agriculture. Traditionally and-to 'this day, the-economic development of the Central American nations has been dominated by the growth of the agricultural exDort sector. This has led to a structural and institutional framework in agriculture characterized by a dual economic system--a traditional sector oriented to domestic-market production sand- a modern sector geared to.,production specialization for export to world markets. -Chapter,.If,'reqents the. histori al .foundationsi of', the- dual economy in the colonial and post-colonial periods ,(upAmtil 1950). Chapter,I ,;evaluates the role and performance of,,dontempora yi Central American agricultural economies (to 1967)in terms of external balance, internal growth, -and employment and income, distribution.; ChapterIII analyses the contemporary agricultural economy in terms of structural and'functional organization,,and concludes with some implications for agricuitural development policy. CHAPTER I THE HISTORICAL FOUNDATION OF THE DUAL ECONOMY PART-,1, THE COLONIAL PERIOD The Central American economies, even today, remain both agriculturally based and dominated by the export sector. Histori­ cally, the economic system has been divided into a traditional sector oriented mainly to the internal market, and a modern sector closely tied to the world economy through trade and speciali­ zation in the production of agricultural commodities for export. Until recently, it was generally believed that this economic duality began with the growth of the coffee industry during the second half of the 19th century. However, geographic characteristic and Spanish colonial policies .in force before the iptroduot.ion, Oof ee had, already pro!vided the -economic foundations, Of. duality. The"Influence of Geographical Factors The' Central American isthmus -(excluding Panama) is an elon­ gated and narrow territory divided by a central mountain range into two "distinctwatersheds or slopes. Indigenous and Spanish coloniaf civilizations concentrated in the highlands of the Central Range and the Pacific slopes where cliz,'atic conditions were benign. Ample land resources and small population made it unnecessary to colonize the coastal areas until the end f "the. 19th century. Only in Nicarau did settlement occur in the Pacific coatal plains. The concentration of population in highland areas had two immediate and pervasive effects. First, the mountainous terrain impaired social and economic relations among countries, and con­ tributed to a locally directed pattern of political and economic development. Second, the narrowness of the isthmus, the small size of the countries, and their free access to one of both oceans made internal communication among countries more difficult and expensive than with the rest of the world. Thus, there was no natural force to aid the development of a geographical sense of unity and to counterbalance the tendency of the countries to pursue an outward-directed pattern of growth. Colonial 'Pol'iesin"Central Americad ' RIative4to other territories of'the Spanish colon epire, Central America offered little mineral wealth or labor with which to entice v.Igorous colonization. Throughout the entire colonial period, the area remained under-populated azd neglected. Sparse population limited utilization of resources and the size of the internal market. These tw factors placed a serious constraint on the development of the area as a whole, and on Honduras, Nicaragua, and Costa Rica in particular. Rodrigo Facio Brenes, La Federaci6n de Centroamerica (San Jose: ESAPAC, Publicaci6n Miscelanea No. 907, 1965), p. 7. LIcang v2gorouS enective: demiknd "from the;'!inernal market,) Central American economies have always depended largely on export demand., This wy"Spdii tmonopboitid maiageent'of- colonial tradeoand:'genral nelect of -thd neeads or ;poblems' faced by the provinces' exports were particularly detrimental to their economic growth. ercantilistic colonial policies were designed to establish .bilatderal trade flows betVeen the Iberian peninsula and.Its colonies. Intercolonial trade was discouraged by high internal tariffs or outright prohibitions. Trade with other
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