**1. Introduction**

During the last decade, the Central American region has shown some economic and social advances that have been insufficient to reverse the global problems and social imbalances that have considerably hindered the development of the region's countries since the end of the 20th century. Before the pandemic, most of the countries in the region presented economic and social situations characterized by certain inequalities in some micro- and macroeconomic indicators related to competitiveness, unbalanced distribution of resources, weak political and social structures, and insufficient promotion of human development, aggravated by some political setbacks, sustained social conflict and social violence that condition the levels of social welfare of their populations [1]. Therefore, this article seeks to incorporate competitiveness into the agendas of the countries of Central America to reduce these shortcomings and thus achieve better development standards.

In the 1990s, exports from the Central American region maintained steady growth with an average annual rate of 13.7%, with coffee and textile products being its main export items [2]. In contrast, between the period from 2006 to 2015, exports from the region to the

**Citation:** Melara-Gálvez, C.; Morales-Fernández, E.J. A Comparative Analysis of the Competitiveness of Central American Countries Based on the Global Competitiveness Index before the COVID-19 Pandemic. *Sustainability* **2022**, *14*, 8854. https://doi.org/ 10.3390/su14148854

Academic Editors: Pierfrancesco De Paola, Francesco Tajani, Marco LocurcioandFelicia DiLiddo

Received: 25 April 2022 Accepted: 27 June 2022 Published: 20 July 2022

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**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

United States presented an average annual growth rate of 2.5%, where the competitiveness of Central American countries showed a positive evolution, driven by exports and the establishment of the Central American Common Market (CACM), which subsequently achieved the Central American and Dominican Republic Free Trade Agreement (CAFTA-DR) with the United States, Canada, and Mexico [3]. However, in recent years, all countries except Panama and Costa Rica have experienced stagnation in their competitiveness.

Between 2016 and 2019, before the pandemic, the Central American region presented a declining panorama in terms of economic performance, at the same time that some relevant sectors showed signs of exhaustion and deceleration processes, which directly impacted the labor opportunities of the population. This situation could be associated with the low tax burden in Central American countries, which is lower as a percentage of GDP than the average tax burden in Latin America, and the high budget deficit in all countries [1].

The region's countries have advanced slowly and unevenly in transforming their productive and labor structures, with reduced margins for change explaining the fragility of their socio-economic systems and development. This can be seen by comparing the gaps between countries' GDP per capita, where Panama has the highest GDP per capita in the region, followed by Costa Rica. The disparity is such that, in 2019, Panama's GDP per capita was almost seven times the GDP per capita of Nicaragua, more than five times the GDP per capita of Honduras, and between three and four times the GDP per capita of El Salvador and Guatemala [1].

Based on the relevance of competitiveness as a driver of wealth for countries and the situation in the Central American region, this paper aims to analyze the competitiveness and development of Central American countries.

Competitiveness depends on the ability of countries to produce knowledge, education, and innovation, which function as indicators of growth and globalization [4]. Therefore, there is a need to reduce the gaps between the region's countries by strengthening trade, competitiveness, and productivity in the region. A country's competitiveness plays an essential role in the efforts of the state to achieve sustainable development that impacts the well-being of the population, so its measurement has been addressed in various studies. At the same time, it contributes to the creation of economic policies, both at the country and regional levels, which in turn impacts business, especially in developing strategies that improve nations' micro- and macroeconomic levels [5].

The concept of competitiveness dates back to the Theory of Trade when Adam Smith established that profit maximization, as an absolute advantage, is how a country obtains more significant benefits and trade becomes the generator of world production growth [6]. Later, Heckscher-Ohlin postulated that the intensity or abundance of the factor of production is the variable that drives the difference in comparative advantage [6].

However, it was not until the 1990s that Michael E. Porter [7] presented the basis of the so-called Competitiveness Theory. From this, the definition of competitiveness of the World Economic Forum (WEF) emerges, which defines it as "the set of institutions, policies, and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the economy can achieve" [8]. Likewise, and addressing the concept beyond the country level, competitiveness can be understood as the ability of companies, industries, regions, or geographic areas to generate relatively high levels of income and employment on a sustainable basis [9]. Therefore, if the main goal of a nation is to produce a high and sustained standard of living for its citizens, productivity becomes a lever to achieve this goal, being fundamental the ability to measure the state of competitiveness at the country level as a source of information that determines future allocations of public resources to improve it [10]. In addition, Baumann and Pintado [11] proposed the model known as competitive productivity, which seeks the concrete relationship between both concepts and relates attitudes and behaviors aimed at beating the competition.

In this sense, the Central American region and the countries that comprise it present notable inequalities in some micro- and macroeconomic indicators related to competitiveness [12]. Although it is worth noting that the countries of the region showed positive

changes in their competitiveness during the 1990s [13], in recent years, they have experienced stagnation on average, only surpassed by Panama [12]. In addition, it should be considered the work done regarding the region's integration, where a process of continuous changes has been experienced concerning trade integration, at the same time on infrastructure and mobility, tourism, environment, and more [14].

Thus, and based on the relevance of the concept of competitiveness as a driver of wealth at the country level and the situation described in Central America, this work aims to perform a comparative analysis of the competitiveness of Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama) in a globalized environment, to deepen the knowledge about their behavior in terms of competitiveness, in addition to visualizing whether these countries present similar traits of competitiveness because they are located in the same region or if there are other countries with similar characteristics.

To this end, this research responds to the problem posed by the fact that the Central American region has considerable difficulties in terms of development. Hence, the objective is, first, to identify significant differences in the competitiveness of Central American countries, and second, to determine the variables with the most important differentiating potential in the region. For this, secondary data from the World Economic Forum's Global Competitiveness Indicator (GCI) for Central America published in 2018 [12] and 2019 [15] are used, this taking into account that the GCI was updated in 2018, incorporating the novelty of the evaluation of variables focused on the fourth revolution, which, at the same time, prevents comparison with previously published indicators but manages to cover current issues and multivariate statistical analysis, mainly cluster analysis by hierarchical clusters. Thus, first, the Central American countries are classified according to the 12 pillars that make up the GCI, considering 139 countries covered by this index, in order to subsequently study only the Central American countries.

Concerning the structure of this paper, after the introductory section, the conceptual framework of the research is presented, followed by a review of the data and the characteristics of the sample. Next, the methodology of analysis is presented, followed by an explanation of the results, ending with the discussion and conclusions.

#### **2. Literature Review**

The concept of competitiveness has evolved throughout the history of economic thought, adopting different approaches, from mercantilist theories, which introduced the idea of a rivalry between nations, to Porter's well-known theory of the competitive advantage of nations [5]. Precisely, Smith established that absolute advantage was based on specialization to minimize absolute costs (profit maximization); this became the way for a country to obtain greater profits and trade was the generator of growth in world production. Subsequently, David Ricardo advanced in the theory defined by Smith, establishing that relative costs, and not absolute costs, are determinants for the establishment of the advantage between countries until the contribution of Heckscher-Ohlin appeared by proposing the abundance of production factors as a differentiating variable and generator of comparative advantage [6].

Another important idea in the development of the concept of competitiveness is that of Krugman [16], who mentioned that the competitiveness of countries should not be measured exclusively with macroeconomic factors, this is based on Ricardo's idea, that all countries have a comparative advantage; added to the fact that states cannot go bankrupt, while companies can; also that competition is generated between companies and not between nations so that competitiveness is firmly rooted in the behavior of companies [5].

At the end of the 20th century, Michael Porter presented the Theory of Competitiveness, stating that "the prosperity of a nation depends on its competitiveness, which is based on the productivity with which it produces goods and services. At the same time, he states that macroeconomic policies and solid legal institutions, and stable policies are necessary but not sufficient conditions to ensure a prosperous economy. Competitiveness is grounded in a nation's microeconomic fundamentals: the sophistication of a company's operations and

strategies and the quality of the microeconomic business environment in which companies compete. Understanding the microeconomic foundations of competitiveness is vital for national economic policy" [7]. He also mentioned that the main goal of a nation is to produce a high and sustained standard of living for its citizens. In a globalized world, countries face a variety of challenges and opportunities. Figure 1 shows a timeline of the evolution of the concept described in this section.

**Figure 1.** Evolution of the concept of competitiveness.

The constant flow of products and services between nations has increased and become more volatile, with some countries benefiting and others not [5], explaining the growing interest in competitiveness at all levels shown by many governments and industries, which demonstrates the importance of measuring it through productivity [17]. Precisely, D'Alessio stated that the concept of productivity is the "relationship between the results obtained concerning the resources used and the time to achieve them" [18]. This concept was also taken by Porter [10], when he proposed a model that helps understand industries and competition, facilitating the formulation of global strategies.

Taking into account the above concepts, Mahmoo [19], clarified that "The notion of comparative advantage is based on the factor endowment position of a country where no participating firm within an industry has an advantage over another based on its factor endowment (public goods characteristics). Unlike comparative advantage, competitive advantage is created and appropriated by individual firms (private good characteristics). One should not choose between one of the two paradigms, as they are neither mutually exclusive nor explicitly separable. So, we can argue that it is inappropriate to present competitive advantage as an alternative (substitute) to comparative advantage. The two theories must properly be seen as complements rather than competitors in the formulation of trade and industrial policies".

Another idea that emerges is the relationship between competitiveness and GDP, where wealth, prosperity, and economic growth are often referred to as the results of substantial and well-developed intellectual capital. However, GDP has become a questionable indicator of prosperity and economic development, given that national well-being lies beyond GDP, which in turn requires inclusive economies, productivity, and well-functioning markets [20].

From a business perspective, a company's competitiveness is its capacity to supply goods and services that are equally or more effective and efficient than those of its competitors [21]. With the same idea, Labarca [22] mentioned that competitiveness is the determining factor in determining how easy it is for companies to take advantage of the opportunities offered by the international economy. There is evidence to sugges<sup>t</sup> that international trade strongly influences certain sectors of a country to produce the same goods and services they already produce but at a lower cost, through the improvement of technology in their production processes, which becomes a differentiating factor between developed and developing countries [23].

In addition, Esser [24] mentioned that systemic competitiveness constitutes a frame of reference for both industrialized and developing countries. He said that competitiveness is the product of the interaction between a nation's four economic and social levels. A first micro- or business-level simultaneously seeks efficiency, quality, flexibility, and speed of reaction of companies. A second meso-level, which corresponds to the state and social actors responsible for the development of specific support policies, encourages the formation of structures and articulates learning processes at the societal level. A macro-level, which exerts pressure on companies through performance requirements. In addition, there is a final target level, which is structured with solid basic patterns of legal, political, and economic organization, and the social capacity for organization and strategic integration [24]. Thus, and thanks to the increase in intraregional trade among the nations that make up a region, regional economic integration has positively impacted the national economies of the countries that make up the region as a whole [25].

In this concept, two elements differentiate it from others. A first element, such as the distinction of the four levels (meta, macro, meso, and micro), emphasizes the importance of the meta-level where the factors related to the capacity of society for integration and strategic action are examined, and a meso-level where the action of an environment capable of promoting and multiplying the company's efforts is studied. In addition, a second difference is related to linking elements to industrial economics, innovation theory, and industrial sociology [24].

The adoption and evolution of concepts such as regional innovation systems, and the recognition of subnational regions as critical units in globalization, have given rise to increasing attention to regional competitiveness policies, a common factor strengthening the conditions for innovation. Designing effective competitiveness policies is a complicated, dynamic, innovative process [26].

In a complementary manner, the Economic Commission for Latin America and the Caribbean (*CEPAL*) considers that national competitiveness is the "capacity of a country to increase or maintain its participation in international markets, which in turn translates into an increase in the standard of living of the population" [27].

Along the same lines, Wienert [17] defined competitiveness as the ability of firms, industries, regions, or specific geographic areas to generate relatively high levels of income and employment on a sustainable basis. He also mentioned that the Organization for Economic Cooperation and Development (*OECD*) has four different classifications for competitiveness studies:


• Eclectic/Academic considers competitiveness a complex concept composed of specific and selective factors and elements, such as the pillars of competitiveness that make up the World Economic Forum's global competitiveness model.

Likewise, and considering the contribution of Porter [10], Baumann and Pintado [11] proposed the beginnings of the model known as competitive productivity (CP), which in essence relates attitudes and behaviors aimed at beating the competition. This approach considers that productivity can be separated from competitiveness. In contrast, a pure focus on competitiveness can overlook productivity, so a nation, company, or individual could be very productive but not necessarily competitive [28].

Later, Baumann, Cherry, and Chu [28] added a broader look to the concept of the competitive productivity model, adjusting the concepts of productivity and competitiveness at different levels. The first is at the national level (NCP), which considers the geography, political stability, culture, and institutions, as well as the economic policy of each country. A second level, at the enterprise or meso-level (FCP), considers variables related to talent management, resource management, corporate culture, and brand management. In addition, a third level, at the individual or micro-level (ICP), considers the individual's genetics, personality, motivation, education, nature, and life experience.

The literature review on the definitions and concepts of competitiveness shows a diversity of nuances. However, they share the idea that competitiveness should have an impact on improving a country's prosperity [29]. Complementarily, the different theoretical foundations of the concept of competitiveness have generated various forms and measurement instruments, such as, for example, the Global Competitiveness Index of the Institute for Management Development (IMD); the World Bank's Doing Business Index, or the International Competitiveness Index of the Mexican Institute for Competitiveness (IMCO). However, Ordóñez [29] mentioned that, possibly, the best-known competitiveness evaluation reference is the Global Competitiveness Index, prepared and published annually and since 1979 by the World Economic Forum, which defines competitiveness as "the set of institutions, policies and factors that determine the level of productivity of a country" [20], and considers that the level of competitiveness has a direct relationship with the ability of countries to achieve sustained growth and long-term prosperity.

#### **3. Data and Methodology**
