World Bank2012-06-132012-06-132008-09https://hdl.handle.net/10986/7959Central America's economic performance in recent years has benefited from improved macroeconomic management, a favorable external environment, as well as rising investor confidence since the region has pursued greater access to global markets, particularly with the signing Dominican Republic, Central American Free Trade Agreement (DR-CAFTA) in 2004. Nonetheless, while important reforms have been made, much remains to be done, and the context of a less favorable global environment underlines the urgent need to improve competitiveness and enhance productivity. An improving investment climate will contribute to both. This chapter discusses the broad economic factors that shape the investment climate in Central America. Section one describes the overall strategic context, highlighted by the opportunities and challenges emerging from the new trade deal. Section two discusses the region's macroeconomic environment, economic growth, sectoral changes, the business cycles with the US, and overall stability. Section three covers trade, financial and remittances flows, which are particularly important to the region. Section four summarizes and takes a look ahead.CC BY 3.0 IGOAGRICULTUREAVERAGE PRODUCTIVITYBALANCE OF PAYMENTSBANKING SUPERVISIONBENCHMARKINGBUSINESS CLIMATEBUSINESS CYCLESBUSINESS DEVELOPMENTBUSINESS ENVIRONMENTBUSINESS INVESTMENTCAPITAL INFLOWSCAPITAL MARKETSCENTRAL BANKCENTRAL BANKSCIVIL WARCOMMODITIESCOMMODITYCOMMODITY PRICECOMMODITY PRICESCOMMON MARKETCOMMUNICATIONS TECHNOLOGIESCOMPARATIVE ADVANTAGECOMPETITIVENESSCONCEPTUAL FRAMEWORKCONNECTIVITYCONNECTIVITY INDEXCONSUMER PROTECTIONCONTRACT ENFORCEMENTCOUNTRY RISKCPICREDITWORTHINESSCURRENT ACCOUNT BALANCESCUSTOMS UNIONDEBTDEMOCRACIESDEMOCRACYDEVELOPING COUNTRIESDEVELOPMENT ASSISTANCEDEVELOPMENT INVESTMENTSDEVELOPMENT STRATEGYDIVIDENDDOMESTIC MARKETSECONOMIC ACTIVITYECONOMIC DEVELOPMENTSECONOMIC EXPANSIONECONOMIC FACTORSECONOMIC GROWTHECONOMIC IMPACTECONOMIC INTEGRATIONECONOMIC PERFORMANCEECONOMIC REFORMSECONOMIC VOLATILITYECONOMIES OF SCALEELASTICITIESELECTRONIC FUNDSEMPIRICAL ANALYSISEMPIRICAL INVESTIGATIONSEMPIRICAL STUDIESENVIRONMENTALEXCHANGE RATEEXCHANGE RATESEXPENDITURESEXPORT BASEEXPORT MARKETEXPORTSEXPOSUREEXTREME POVERTYFINANCIAL CRISISFINANCIAL FLOWSFINANCIAL INSTRUMENTSFINANCIAL MARKETFINANCIAL RESOURCESFINANCIAL SECTORFINANCIAL SERVICESFINANCIAL SYSTEMFIRM PERFORMANCEFISCAL DEFICITSFISCAL POLICIESFOOD PRICESFOREIGN COMPANYFOREIGN DIRECT INVESTMENTFOREIGN EXCHANGEFOREIGN INVESTMENTFOREIGN OWNERSHIPFREE TRADEFREE TRADE AGREEMENTFREE TRADE AGREEMENTSGDPGLOBAL ECONOMYGLOBAL MARKETSGOVERNANCE INDICATORSGOVERNMENT REGULATIONSGROSS DOMESTIC PRODUCTGROWTH RATEGROWTH RATESHARMONIZATIONHOME COUNTRYHUMAN CAPITALINCOME GROUPINCOME GROUPSINCREASING RETURNSINCREASING RETURNS TO SCALEINDIVIDUAL FIRMSINEFFICIENCYINFLATIONINFORMATION SHARINGINFRASTRUCTURE INVESTMENTINTELLECTUAL PROPERTYINTEREST RATESINTERMEDIATE INPUTSINTERNATIONAL BEST PRACTICESINTERNATIONAL MARKETSINTERNATIONAL RESERVESINTERNATIONAL TRADEINVENTORYINVESTMENT CLIMATEINVESTOR CONFIDENCEINVESTOR PROTECTIONJOB CREATIONJUDICIAL SYSTEMJURISDICTIONSLABOR FORCELABOR MARKETLEGAL FRAMEWORKLEGAL FRAMEWORKSLIBERALIZATIONLONG-TERM INVESTMENTLONG-TERM INVESTMENTSMACROECONOMIC CONTEXTMACROECONOMIC MANAGEMENTMACROECONOMIC POLICIESMACROECONOMIC STABILITYMANUFACTURING INDUSTRYMARKET ACCESSMARKET ECONOMYMARKET EFFICIENCYMARKET SHAREMARKET SHARESMETALSMIDDLE INCOME COUNTRIESMIDDLE-INCOME COUNTRIESMIDDLE-INCOME COUNTRYMONEY LAUNDERINGMULTILATERAL DEVELOPMENTMULTINATIONAL CORPORATIONSNATIONAL INCOMENATURAL DISASTERSNATURAL RESOURCESNEW PRODUCTSOILOIL PRICESOPEN ECONOMYOUTPUTPATENTSPAYMENT SYSTEMSPAYMENTS SYSTEMPAYMENTS SYSTEMSPENSIONSPER CAPITA INCOMEPOINT OF SALEPOLICY ENVIRONMENTPOLICY MAKERSPOLITICAL CONSIDERATIONSPOLITICAL CYCLEPOLITICAL STABILITYPOLITICAL SYSTEMPOWER PARITYPREFERENTIAL ACCESSPRICE INCREASESPRIVATE INVESTMENTSPRODUCERSPRODUCTION PROCESSESPRODUCTION STRUCTUREPRODUCTIVITY INCREASESPROPERTY RIGHTSPUBLIC DEBTPURCHASING POWERQUALITY STANDARDSQUOTASRAPID GROWTHREAL TIME GROSS SETTLEMENTREGIONAL INTEGRATIONREGIONAL POWERREGIONAL TRADEREGULATORREGULATORY AUTHORITIESREGULATORY ENVIRONMENTREGULATORY POWERSRETURNS TO SCALERISK MANAGEMENTSECURITIESSTRUCTURAL CHANGESUSTAINABLE DEVELOPMENTTAXTAX RATESTAX REFORMTECHNOLOGICAL ADVANCESTECHNOLOGY TRANSFERTERMS OF TRADETOTAL FACTOR PRODUCTIVITYTOTAL OUTPUTTRADE BARRIERSTRADE LIBERALIZATIONTRADE POLICYTRADE RELATIONSTRADEOFFSTRANSPARENCYVOLATILITYWORLD DEVELOPMENT INDICATORSWORLD ECONOMYWORLD TRADEWORLD TRADE ORGANIZATIONWTOWorld Bank10.1596/7959