Measuring the degree of Central American economic integration via interconnectivity dynamics and spillovers
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Abstract
Recent economic, trade, health, political and social shocks have shown that the integration process in the Central American region is based on close relationships that have a profound impact on the economic performance of each of the members of the integration bloc (economic interdependence). In this sense, this study examines the level of integration in the region in order to identify those countries that could be classified as senders or receivers of integration impulses and the position of integration in the face of shocks of different natures. Using an interconnectivity index based on the variance decomposition of the forecast error variance of a vector autoregressive (VAR) model, applied to the Monthly Index of Economic Activity (MAEI) of each country, it is shown that the index is capable of satisfactorily capturing the ‘comovements’ of the integration process and identifies the moments of boom and slowdown in the Central American integration impulse.
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