Central American economies are facing challenges due to factors like Mexican liberalization, low savings rates, and the North American Free Trade Agreement (NAFTA). To improve income, they need to focus on exporting labor-intensive goods to North America. However, competition from Asian countries like China is making it harder for Central America to compete. The region needs to stabilize its terms of trade and increase exports of manufactures to attract investments. NAFTA could make Mexico more attractive to investors, potentially impacting Central America. To address these challenges, Central American governments should focus on increasing domestic savings, reducing investment risks, and supporting infrastructure and education.