text: Economic history of Nicaragua \n\nPre-Columbian and Colonial Era\nThe first Spanish explorers of Nicaragua found a welldeveloped agrarian society in the central highlands and Pacific lowlands. The rich volcanic soils produced a wide array of products, including beans, peppers, corn, cocoa, and cassava (manioc). Agricultural land was held communally, and each community had a central marketplace for trading and distributing food.\n\nThe arrival of the Spanish in the early 1500s destroyed, for all intents and purposes, the indigenous agricultural system. The early conquistadors were interested primarily in gold; European diseases and forced work in the gold mines decimated the native population. Some small areas continued to be cultivated at the end of the 1500s, but most previously tilled land reverted to jungle. By the early 1600s, cattle raising, along with small areas of corn and cocoa cultivation and forestry, had become the primary function of Nicaragua's land. Beef, hides, and tallow were the colony's principal exports for the next two and a half centuries.\n\n\nThe Coffee Boom, 1840s-1940s\nCoffee was the product that would change Nicaragua's economy. Coffee was first grown domestically as a curiosity in the early 1800s. In the late 1840s, however, as coffee's popularity grew in North America and Europe, commercial coffee growing began in the area around Managua. By the early 1850s, passengers crossing Nicaragua en route to California were served large quantities of Nicaraguan coffee. The Central American coffee boom was in full swing in Nicaragua by the 1870s, and large areas in western Nicaragua were cleared and planted with coffee trees.\n\nUnlike traditional cattle raising or subsistence farming, coffee production required significant capital and large pools of labor. Laws were therefore passed to encourage foreign investment and allow easy acquisition of land. The Subsidy Laws of 1879 and 1889 gave planters with large holdings a subsidy of US$0.05 per tree.\n\nBy the end of the nineteenth century, the entire economy came to resemble what is often referred to as a "banana republic" economy--one controlled by foreign interests and a small domestic elite oriented toward the production of a single agriculture export. Profits from coffee production flowed abroad or to the small number of landowners. Taxes on coffee were virtually nonexistent. The economy was also hostage to fluctuations in the price of coffee on the world markets--wide swings in coffee prices meant boom or bust years in Nicaragua.\n\n\nDiversification and Growth, 1945-77\nThe period after World War II was a time of economic diversification. The government brought in foreign technocrats to give advice on increasing production of new crops; hectarage in bananas and sugarcane increased, livestock herds grew, and cotton became a new export crop. The demand for cotton during the Korean War (1950-53) caused a rapid increase in cotton production, and by the mid-1950s, cotton was the nation's second largest export earner, after coffee.\n\nEconomic growth continued in the 1960s, largely as a result of industrialization. Under the stimulus of the newly formed Central American Common Market, Nicaragua achieved a certain degree of specialization in processed foods, chemicals, and metal manufacturing. By the end of the 1960s, however, import-substitution industrialization as a stimulus for economic growth had been exhausted. The 1969 Soccer War between Honduras and El Salvador, two members of the CACM, effectively suspended attempts at regional integration until 1987, when the Esquipulas II agreement was signed. By 1970 the industrial sector was undergoing little additional import substitution, and the collapse of the CACM meant that Nicaragua's economic growth, which had come from the expanding manufacturing sector, halted. Furthermore, the manufacturing firms that had developed under the tariff protection of the CACM were generally 