Costa Rica pre release

Question 1

Economic overview of the Costa Rica’s development

Answer 1

Abolished army in 1949, allowing for increased spending elsewhere

• Free Trade Zones (FTZ) law in 1981. First this attracted low-tech sectors (textiles), and gradually attracted companies in high-tech sectors (electronics, advanced manufacturing, medical devices) .

-By 2014, FTZs accounted for 53 percent of exports, and Costa Rica’s economy is very intensive in FDI (4.2 percent of GDP) due to political stability and relatively high education levels

• Decision by Intel to set up a semiconductor assembly and test plant in Costa Rica in 1996 was clearly a turning point in attracting foreign investors. Examples of TNCs include Abbott Laboratories (now Hospira),
• Electronics, medical devices, and other manufactured goods now make up about 60% of goods exports.
• Member of CAFTA-DR since 2009 (Dominican Republic-Central America Free Trade Agreement)

Question 2

Economic achievements of Costa Rica’s growth

Answer 2

• Only 1.6 percent of the population lives under the global US$1.90 poverty line.

• Sustained social spending (20% of GDP) has resulted in improved education,
healthcare, clean water, sanitation and access to electricity

• Life expectancy at birth improved from 61.6 years in 1960 to 72.5 years in 1980
and to 79.7 years in 2012, similar to the OECD average of 80.7 years.
Strong Environmental Protection Policies

• Payments for Environmental Services (PES) program has been successful in promoting forest and biodiversity conservation; making Costa Rica the only tropical country in the world that has reversed deforestation.

Question 3

What challenges exist for Costa Rica development?

Answer 3

-Poverty reduction has stagnated, and between 2010 and 2014, with poverty
increasing by 0.4 percentage points

• Poor infrastructure, high energy costs and weak investor protection and difficulties enforcing contracts still deters investment into Costa Rica

• Insufficient maintenance on existing infrastructure has led to congestion and
poor quality public transport such as railways.

• Increasing debt is eroding social security measures

Question 4

Social factors why the challenges exist in Costa Rica

Answer 4

-Nicaraguan migrants (an important source of unskilled labour) put strain on
social welfare system Little growth in sectors providing low-skilled jobs (e.g.
construction and agriculture)

• Many indigenous groups have poor school completion

Question 5

Political/economic factors why the challenges exist in Costa Rica

Answer 5

Poor government communication around infrastructure projects has led to
strikes and protests agains some infrastructure projects e.g. the USD $650
million toll road Corredor San José - San Ramón, had its contract rescinded in
2013

• Increasing taxes are forcing more into the informal sector
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• Rising public debt due to increased government expenditures

• The shift from a two party to a multiparty political system in the last 15 years has
resulted in more complex and lengthy reform processes

• Infrastructure investments difficult due to excessive institutional
fragmentation, which reduces transparency and accountability of public sector
agencies, poor strategic planning, which results in haphazard infrastructure
development and poor intermodal connections