Central America Had the Geography, So Why Did ASEAN Win the Supply Chain Race?
Why Fiscal Discipline and Regional Coordination, Not Geography Alone, Determine Success in Global Value Chains
Abstract & Findings
ASEAN’s integration into global supply chains has been driven not simply by trade openness, but by the development of a coordinated regional production system supported by infrastructure, institutional alignment, and macroeconomic stability. Central America, despite geographic advantages and preferential access to the United States, remains constrained by fragmentation across these same dimensions. The comparison suggests that deeper regional coordination, combined with sustained attention to debt sustainability as emphasized in the Central America Composite Index, CACI, could materially increase the region’s participation in global value chains over the medium term.
Introduction
Global supply chains are undergoing a structural reconfiguration. Rising costs in Asia, geopolitical tensions, and the push for nearshoring have created a window of opportunity for regions proximate to major consumer markets. Central America is frequently cited as a potential beneficiary of these shifts, particularly given its preferential access to the United States under CAFTA DR. Yet the gap between potential and performance remains substantial. While ASEAN economies account for roughly 7 to 8 percent of global exports, Central America remains below 1 percent, despite comparable or lower labor costs in several sectors (World Bank, 2024). This divergence raises a central question: why has one region become deeply embedded in global value chains, while the other remains only partially integrated? ASEAN’s transformation, extensively analyzed by institutions such as the Economic Research Institute for ASEAN and East Asia, provides a useful benchmark (ERIA, 2023). This paper argues that the difference lies not in geography, but in the quality of integration, infrastructure execution, and macroeconomic consistency. In this context, debt sustainability and macroeconomic stability, captured in the Central America Composite Index (CACI), offer a structured way to assess the constraints shaping the region’s ability to integrate into global value chains. CACI evaluates regional economic performance with an emphasis on fiscal sustainability, external balance, and integration capacity.
Context, Diverging Integration Paths
Economies such as Vietnam, Thailand, and Malaysia have become deeply embedded within global value chains, particularly in electronics, automotive manufacturing, and intermediate goods production. Their export structures reflect increasing complexity and diversification, contributing to ASEAN’s roughly 7 to 8 percent share of global exports (World Bank, 2024). Central America, by contrast, remains below 1 percent of global exports and continues to rely heavily on lower complexity manufacturing and agriculture, with only limited penetration into higher value-added sectors (IMF, 2024). While countries such as Costa Rica have made notable advances in areas like medical devices, these gains have not yet translated into a region-wide shift in production structure. The contrast reflects differences not in cost competitiveness, but in how integration has been operationalized. In Southeast Asia, production networks have developed through sustained cross-border specialization and supply chain connectivity. In Central America, integration remains limited, with economies functioning largely as adjacent but only partially interconnected production systems.
Economic Transmission Channels
Investment and Production Structure
ASEAN’s defining strength lies in its ability to operate as a connected production ecosystem. Firms distribute stages of production across countries, optimizing for cost, specialization, and resilience. This fragmentation has enabled the region to scale rapidly within global value chains (ERIA, 2023). In Central America, investment decisions remain largely national. Regulatory divergence and limited coordination prevent the emergence of a comparable regional system. Macroeconomic credibility plays an important but indirect role. The Central America Composite Index (CACI) emphasizes that stable debt trajectories reduce sovereign risk and support investor confidence. In Southeast Asia, relatively conservative fiscal management has contributed to lower uncertainty around inflation, taxation, and currency stability (IMF, 2024).
Trade Facilitation and Execution
Trade agreements have been important in both regions, but ASEAN’s advantage lies in implementation. Through sustained reductions in non tariff barriers and the harmonization of customs procedures, member states have created a more predictable and efficient trading environment (OECD, 2023). Central America continues to face frictions at this level. Border processing times remain longer, and administrative inconsistencies increase costs for firms operating across multiple jurisdictions (World Bank, 2024). These constraints are not purely technical. They reflect underlying institutional and fiscal capacity. Maintaining modern customs systems and digital trade infrastructure requires sustained public investment, which depends on credible fiscal frameworks.
Infrastructure and Logistics
ASEAN’s integration has been supported by long term investment in ports, transport corridors, and industrial zones. These systems enable the efficient movement of intermediate goods, a prerequisite for participation in modern supply chains (ERIA, 2023). Central America’s infrastructure remains more fragmented. While national level improvements have been made, regional connectivity is still limited, and cross border coordination remains weak. The ability to sustain infrastructure investment at scale is closely linked to fiscal credibility. High performing ASEAN economies have generally maintained manageable debt levels, enabling continued investment without undermining macroeconomic stability (IMF, 2024).
Institutional Coordination and Fiscal Credibility
ASEAN’s institutional model emphasizes coordination rather than centralization. Regular policy alignment has created an environment in which firms can plan across borders with greater certainty. A supporting factor is fiscal discipline. Economies such as Vietnam, Thailand, and Malaysia have maintained relatively prudent debt levels, contributing to lower risk premiums and more stable macroeconomic conditions (IMF, 2024). This experience aligns with the Central America Composite Index (CACI), which treats debt sustainability as one component of broader economic resilience. Evidence from Southeast Asia suggests that macroeconomic stability can reinforce industrial development by strengthening investor confidence and enabling sustained public investment. In Central America, where fiscal trajectories vary significantly across countries, this remains a binding constraint. Without credible macroeconomic anchors, efforts to deepen regional supply chain integration may struggle to scale.
Debt Sustainability as it relates to Exports
Illustrative Relationship, Debt Sustainability and Export Integration
Source, Author estimates based on IMF 2024, World Bank 2024
© Central America Economic Review 2026
Illustrative Relationship, Debt Sustainability and Export Integration
The figure presents a simplified comparison between debt sustainability and export integration across representative ASEAN and Central American economies. The horizontal axis reflects debt to GDP levels, while the vertical axis approximates export integration, capturing the relative depth of participation in global value chains. The clustering suggests a broad pattern. ASEAN economies tend to combine moderate debt levels with higher degrees of export integration, while Central American economies exhibit higher relative debt burdens alongside more limited integration. The visualization is illustrative rather than strictly econometric. However, it is consistent with findings in the broader literature, which suggest that macroeconomic stability is associated with stronger and more sustained participation in complex supply chains (IM, 2024 ; World Bank, 2024). Within the Central America Composite Index (CACI) framework, this relationship is interpreted as indicative of a structural channel through which debt sustainability may influence investment conditions. Rather than acting solely as a fiscal outcome, debt trajectories can shape perceptions of macroeconomic credibility, affecting a country’s ability to attract investment and scale production within global markets.
Conclusion
Central America’s position in the evolving global supply chain landscape is promising but uncertain. Geography and trade access provide a foundation, but they do not determine outcomes on their own. ASEAN’s experience illustrates that successful integration into global value chains depends on coordinated regional integration, sustained infrastructure investment, and consistent macroeconomic policy. Among these, fiscal discipline, reflected in the Central America Composite Index (CACI) through its emphasis on debt sustainability, is best understood as a supporting condition that reinforces long term macroeconomic credibility and investment stability rather than as a standalone driver. For Central America, the implication is that fragmented national strategies limit the region’s ability to fully leverage external opportunities, even in the context of nearshoring and preferential trade access. A more integrated regional approach, supported by credible and stable macroeconomic frameworks, would strengthen the conditions for deeper participation in global value chains. Without such adjustments, the region is likely to remain partially integrated into global production networks rather than emerging as a fully embedded regional node.
Methodological Note on the Central America Composite Index, CACI
The Central America Composite Index (CACI) is designed as a region specific analytical framework incorporating structural variables tailored to the economic composition, fiscal dynamics, and integration patterns of Central American economies. While the framework can be used for cross regional comparison, including with ASEAN, such comparisons should be interpreted as directional rather than strictly equivalent. Certain inputs, particularly those related to institutional structure, fiscal transmission mechanisms, and regional trade architecture, are calibrated to reflect Central America’s specific economic context. As a result, cross regional comparisons presented in this analysis are intended to highlight structural patterns rather than establish one to one equivalence. Differences in model calibration should be taken into account when interpreting comparative results across regions.
To read more, see Central America Economic Review´s Regional 2026 Economic Outlook
Sources
Economic Research Institute for ASEAN and East Asia (ERIA). 2023. ASEAN Economic Integration Reports.
https://www.eria.org/publications/
International Monetary Fund (IMF). 2024. Regional Economic Outlooks.
https://www.imf.org/en/Publications/REO
Organisation for Economic Co-operation and Development (OECD). 2023. Trade Facilitation Indicators.
https://www.oecd.org/trade/topics/trade-facilitation/
World Bank. 2024. World Development Indicators.
https://data.worldbank.org/
Secretaría de Integración Económica Centroamericana (SIECA). Various years. Regional Trade Reports.
https://www.sieca.int/
