What would be the impact of proposed Nicaragua canal on Nicaraguan economy?

Ask an Economist

What is your opinion on the potential impact of the proposed Nicaragua Canal, a trade route that would connect the Pacific Ocean to the Caribbean via Lake Nicaragua, on the Nicaraguan economy?


I will focus on the benefits of the Canal when it becomes operational, because a project of this magnitude is very likely to create numerous temporary jobs and plenty of opportunities for local companies in the construction sector during the construction stage.

In principle, the proposed Nicaragua Canal has the potential to create substantial economic benefits to Nicaragua. However, the actual benefits will depend on technical aspects (depth and dredge, width, maximum travel speed, waterway capacity, etc.), the efficiency with which the Canal is administered (processing times, required documentation, waiting lines, etc.), the operational costs (energy costs, labor costs, etc.), and the actual demand for its services (if the world economy and the volume of global trade remain subdued when the Nicaragua Canal becomes operational, then its services might not be in high demand; particularly after the Panama Canal expansion project that started in 2007 and is expected to double its waterway capacity becomes operational).

Even if the actual economic benefits generated by the Canal are sizable, only a share of those benefits in the form of royalties (from the concession of the Canal to the Hong Kong Nicaragua Canal Development Investment Company) will be collected by the federal government. The size of the negotiated royalties and finally the use that the federal government does of those royalties will determine the effect of the Nicaragua Canal project on the people of Nicaragua.

Although the operation of the Canal will likely create a number of long-term job opportunities for highly skilled workers, the number of jobs created will likely be very small compared to the short-term opportunities lost for low skilled workers after the construction phase is completed.

Another relevant issue that exceeds the limits of my response but it should be considered when evaluating the impact of the canal is the Environmental Impact.

Answered by:
Dr. Alejandro Plastina
Associate Professor