1. José Ramón Perea
Annalisa Primi
OECD Development Centre
San José, Costa Rica
July 31st, 2012

2. Outline of the report
1. Costa Rica as a knowledge economy: achievements and challenges
2. Strategy, governance and policy mix for attracting knowledge-
intensive FDI to Costa Rica
3. A road map for policy action
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3. A long-standing democracy and a stable macroeconomic environment
Robust GDP growth since the 60s, only halted with the arrival of the Debt Crisis.
GDP growth, Costa Rica, 1960-2011
- Post-crisis
performance
characterized by
greater GDP
growth volatility,
although better
than many other
Latin American
countries.
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Source: Authors’ calculations based on World Bank data.

4. A remarkable record in per capita income
GDP growth patterns has left Costa Rica with one of the highest per capita
income level of the region.
Latin America, GDP per capita
1985-2009 - By 2009, Costa Rica’s per
capita income was the fourth
highest among a
comprehensive sample of
Latin American countries.
- Growth has facilitated the
task of poverty alleviation,
which is reduced
substantially. Extreme
poverty is reduced more
acutely.
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Source: Authors’ calculations based on Penn World Tables.

5. Costa Rica relied heavily on FDI attraction
FDI, selected economies, 1985-2010
(net inflows as percentage of GDP)
Source: Authors’ calculations based on World Bank data
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6. A proven track record in FDI attraction
Number of companies in knowledge-
intensive activities,
Costa Rica, 1960-2011
Source: CINDE, April 2012.
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7. FDI became a stable source of external financing
Balance of payments, Costa Rica, 1990-2010
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Source: Authors’ elaboration based on International Monetary Fund (IMF).

8. FDI contributed to job creation
Number of jobs created by FDI projects in
Costa Rica by sector (2003-05 and 2009-11)
Note: Total number of FDI-related jobs created for each period for
green field projects: 2003-05:
7 758 jobs; 2009-11: 34 385 jobs.
Source: Authors’ calculations based on fDi Intelligence, 2012.
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9. FDI fostered export diversification and upgrading
Costa Rica evolved from an export structure which was highly
concentrated on agricultural products and textiles and garments…
Costa Rica: Product Space
(1988)
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Source: Authors’ calculations based on Feenstra et al. (2005).

10. …to a more diversified export structure with new, more sophisticated products.
Costa Rica: Product Space
(2008)
- Costa Rica is an “outlier”
in the Product Space: the
accrual of export-oriented
FDI to technology-intensive
sectors allowed the country
to “jump” into areas far from
the country’s original
competitiveness
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Source: Authors’ calculations based on COMTRADE.

11. But ... Costa Rica needs to strengthen its national innovation system
The commitment to invest in innovation is very low
R&D intensity and the role of the private sector,
OECD and non-OECD economies, 2009
Source: Authors’ calculations based on data from UNESCO, RICYT and the OECD Main Science
and Technology Indicators database.
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12. Skills are a critical factor for FDI attraction, but...
Determinants of FDI in Costa Rica and
in selected economies,
2003-12
(% of total motive-citing investing
companies)
Notes: Often more than one investment motive is recorded for any investing company; hence the sum of share of companies
mentioning a certain motive exceeds 100%. The share of companies for which investment motives are recorded over the total
number of investing companies varies by country: Costa Rica: 51.1%, Malaysia: 51.3%, China: 38.4%, India: 43.6%. Data
12 recorded from Jan 2003 - March 2012. IPA means Investment Promotion Agency.
Source: Authors’ calculations based on fDi Intelligence data, 2012.

13. ...there is a mismatch between skilled-labour supply and production structure needs.
Profile of PhDs by area of specialisation, shares over total,
Costa Rica, Chile and Mexico, 2000-09
Source: Authors’ calculations based on RICYT data.
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14. Linkages between foreign and domestic companies are also low
.
due to several reasons: Domestic credit provided by the banking sector,
2010 (% GDP)
Limited access to finance for
domestic companies
Lack of certifications and
standards
Low domestic capabilities
Little demand from MNCs
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Source: Authors’ elaboration based on World Bank data.

15. 1. Costa Rica as a knowledge economy: achievements and challenges
2. Strategy, governance and policy mix for attracting knowledge-
intensive FDI to Costa Rica
3. A road map for policy action
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16. The national strategy for FDI in Costa Rica: prioritising knowledge-intensive FDI
3 approaches to FDI attraction:
Horizontal Selective Systemic
(or Integrated)
Costa Rica
- Target of attracting
USD 9 billion by 2014,
half of which should
come from productive
investment.
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17. The challenge of clarifying the objectives
Policy priorities for FDI attraction in innovation-related activities
Note: x indicates the level of priority (x = priority; xx= higher priority).
Source: Authors’ elaboration based on OECD (2010) and consultations with Costa Rican Government institutions carried out by the OECD
Development Centre in 2011.
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18. The challenge of increasing policy co-ordination
Note: COMEX and MICIT interact with other ministries in designing and implementing FDI policies, including the
Ministry of Planning, which is in charge of setting overall national development targets, and the Ministry of
18 Education.
Source: Authors’ elaboration.

19. The challenge of managing a more complex policy mix
Policy mix
Framework Investment Fiscal Incentives for Incentives for
conditions promotion incentives talent creation innovation and S&T
and retention development
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20. The challenge of facing a new scenario
 Rising competition to attract high value added
Global and knowledge-intensive FDI
changes  New potential investors, beyond additional
partners
 Rising uncertainty regarding the future of
production unbundling
Domestic  Learning in policy making in Costa Rica
changes  Accumulated business capacities
 Rising prioritisation of innovation in Latin
America
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21. The new landscape requires an enhanced policy framework
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Source: Authors’ elaboration.

22. A Road Map for policy action: what are the suggested actions?
1. Strengthening political The Presidential Council for Competitiveness and
Innovation needs to have more enforcement power to
leadership and elaborate shared guidelines and priorities to foster policy
horizontal co-ordination co-ordination
Creating a small and agile observatory-type institution
2. Increasing diagnostics under the direction of the Presidential Council for
capabilities Competitiveness and Innovation could help in monitoring
policy implementation and assessing impact.
Avoiding the risk of dualism FDI and the rest of the
economy can be tackled also through culture.
3. Promoting the culture
of a knowledge-driven Costa Rica needs to break the vicious cycle that
society simplistically associates knowledge and technology with
foreign action and traditional activities with domestic
agents.
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23. Road Map for Policy Action
4. Updating the Additional effort is needed to familiarise potential investors –
country branding and and the global community in general – with the new Costa
Rica.
fostering outreach
5. Diversifying and Investment promotion in Costa Rica has been very effective,
updating investment but there is a need to look at other markets as potential
sources for FDI .
promotion activity
6. Improving the Need to increase the quality and quantity of the skilled labour
quality and supply of force, especially in science and engineering.
Costa Rica could create a fund for skills development
the skilled labour supported by contributions from the government and MNCs.
force
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24. Road Map for Policy Action
Increase the budget for innovation policy
7. Improving the policy Improve the policy mix (ex. Business incubators and new
mix and channeling generation of techno parks)
more resources to Improve the design of innovation incentive schemes
Fostering the development of linkages between MNCs and
innovation domestic companies
Strengthening its research capacities in universities and
8. Improving local research centers.
research capabilities Costa Rica’s small size is a critical factor. The country will
need to take a selective approach
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25. Conclusions
Prioritising knowledge-intensive FDI is a strategic option for Costa Rica.
However, this is not a low-hanging fruit. It will require strong government
commitment, leadership, horizontal co-ordination and financial resources.
The enhanced policy framework will not be a “zero-cost” change, as it
will require mobilising higher public resources.
Higher resources are not in themselves a guarantee of success; they
require effective planning and management; but below a critical mass of
public budget, even the most well-designed plan will face implementation
obstacles. This is even truer in innovation-related domains, where public
effort needs to be backed by private investment .
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Contact: annalisa.primi@oecd.org
joseramon.perea@oecd.org
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