The Effects of Economic Integration and Political Instability in Central America

We use stochastic frontier analysis to study the effects of political instability events and economic integration on technical efficiency. A set of industries in Central America are analyzed during a period of perceived lack of regional economic integration (1980s) and a period of renewed economic integration (early 1990s). Results show that economic integration has had a negative effect on technical efficiency during this period. The effect from political instability depends on the type of event, both at the industry and national level.