Trade Integration and the Rise of the Service Sector in Latin America : the Case of Honduras

Abstract

This thesis analyzes the service dimension of the Central American Free Trade Agreement (CAFTA) and examines the challenges and opportunities which it entails on El Salvador, Guatemala and Honduras with a particular focus on the financial sector. CAFTA s principal merits are seen to be the establishment of a binding legal framework which serves as a lock-in-mechanism of previous reforms and the initiation of a broad public discussion about the competitiveness of the region which has moved the issue of service sector development further up on the political agenda. The range of promising service exports to the US is found to be severely restricted by the insufficient qualification of the region s workforce which often lacks the required professional expertise and English skills. However, in the case of El Salvador and, with qualifications, of Guatemala some confidence in a positive future development of a few selected service segments such as software engineering and medical services seems to be justified. In the financial sector CAFTA consolidates prior liberalization and necessitates further strengthening of the regulatory and supervisory authorities of the financial system. Some limited impact of CAFTA on the banking sector can be expected in Guatemala and Honduras whereas more profound changes are likely in the insurance sector where all three countries will grant enhanced market access to US companies within the next four years.