Coffee 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.
Unlike 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.
By 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.
Data as of December 1993