There is no doubt that, regardless of the standards used or point of view chosen, Central America is underdeveloped. What needs to be understood is that the problem of underdevelopment is only partly indigenous, and to a large degree quite recent. This thesis will look at both external and internal actors, acting independently as well as in alliance, in order to explain their role in underdeveloping the region. I have chosen to focus on two key aspects, trade and foreign investment, in which both actors have played an important role, and which I consider having had, and still have, the most devastating effect on Central America. By means of a historical analysis of the Central American states, I will show how their incorporation into the capitalist world resulted in the underdevelopment of the whole region.