Predictable effects the Central America Free Trade Agreement will have on El Salvador.

Since the implementation of NAFTA in 1994 there has been an incentive to create free trade agreement with all the American countries. The next step to reach a free trade agreement like this has been the CAFTA, where also the Central American countries are involved in an agreement with the U.S. El Salvador is part of this agreement. The project has both been criticized and praised. Due to these different opinions the thesis wants to give answers to how CAFTA will affect different sectors in the economy in El Salvador and how the agreement will affect the people working in these sectors. The studied sectors are the agriculture, the assembly industry and the micro, small, and medium businesses in the informal sector. With the help of theories about free trade, specialization, factor mobility and growth, together with information about the experiences from Mexico and interviews from El Salvador, the answers are given to the problem. El Salvador will have comparative advantages in some products in the agriculture sector. The assembly industry will be able to compete if they can stand against the competition with China. The micro, small, and medium businesses are more orientated to the local market and will not be affected. In all sectors the lack of support from the government is a problem. The FDI is expected to increase but there will not be any technological transfer. Workers in the farm sector will move to the cities where they will find jobs in the assemblies or in the informal sector. Those who do not find jobs will emigrate to the U.S