Costa Rica Essay ⋆ Business Essay Examples ⋆ EssayEmpire

A Central American nation located between Nicaragua and Panama, Costa Rica had a 2008 population of approximately 4.47 million people. By Central American standards, it is a relatively prosperous nation with a 2008 gross domestic product (GDP) of US$30.5 billion. In per capita terms, at US$6,830, it ranks ahead of all Central American economies except Panama. Costa Rica has one of the most stable democracies in the Western Hemisphere. That, in combination with a relatively well-trained labor force, mild climate, and beautiful countryside, has made the country a popular destination for both direct foreign investment and wealthy retirees.

Macroeconomic trends have been largely favorable in recent years. Between 2000 and 2007, real GDP expanded at an annual rate of 5 percent. That figure implies an impressive seven-year growth rate of 3.1 percent in per capita terms. Monetary policy has allowed liquidity to expand at an even faster clip, however, causing inflation to persist at double-digit rates throughout the new millennium. That circumstance is more manageable than might be expected. Central bank policies have generally kept real interest rates in positive territory and avoided excessively easy credit stances. Similarly, the Finance Ministry has also held the central government fiscal deficit in check during this period.

Foreign Trade

Foreign trade patterns resemble those of many tropical economies wherein the service account takes on added importance via tourism as a key generator of commerce. Traditional exports include bananas, coffee, sugar, pineapples, timber, and beef. Newer important merchandise exports include electronic equipment, medical equipment, and pharmaceuticals. Service sector exports encompass tourism, software development, and financial outsourcing. The latter play critical roles in largely offsetting an annual $3 billion plus merchandise trade deficit. Costa Rica further exports substantial volumes of energy produced by its extensive system of hydroelectric dams. It also imports all of its oil-related energy products, contributing to larger than normal merchandise trade deficits since 2002. Other merchandise import categories include capital goods and food.

Although the current account has tallied negative balances in recent years, the colon has remained remarkably strong against the dollar. That reflects the large volumes of foreign direct investment that have occurred during this period in each of the manufacturing and service export sectors mentioned above. Those sectors have attracted an impressive list of multinational corporations drawn in part by strategic fiscal incentives. A growing number of European and North American expatriates have also invested in a variety of residential real estate projects throughout the country, also strengthening the capital account.

Infrastructure

From a regional perspective, the economy of Costa Rica is centered around San Jose, the capital and largest city. Beyond metropolitan San Jose, other important metropolitan economies include Liberia, Puerto Limon, and Puntarenas. All three are regional public administrative, agricultural, and tourism centers. As seaports, international commerce plays an important role in the economies of Puerto Limon and Puntarenas. Although not directly located on the Pacific coast, Liberia has an international airport that helps increase its overseas business linkages.

Among the various policy issues facing Costa Rica, one of the most important is physical infrastructure development. The road system has not been maintained very well and also has failed to keep pace with economic growth in recent decades. Public utility systems and municipal street grids suffer from similar difficulties. Information technology also lags behind modern economies elsewhere in the world. Operational efficiencies for in-country business endeavors inevitably suffer as a consequence of these shortcomings. Services trade issues facing Costa Rica include intellectual property rights, telecommunications competition, and insurance competition. Some of those problems are expected to be addressed as the government moves toward implementation of the Central American Free Trade Agreement. As is the case with most Latin American countries, labor market rigidities continue to hamper Costa Rican economic performance. The labor market is also affected by illegal immigration from Nicaragua. Regulatory burdens facing businesses are also relatively heavy.

Future prospects for Costa Rica remain positive. As a very popular tourist and off-shore residential destination, it has met the trend toward increased service sector globalization very effectively. Its growing industrial sector exports are also helping to modernize an economy characterized by one of the best labor forces in Latin America. Overall productivity in this country can also accelerate as the national government addresses the policy areas currently slowing development.

Bibliography:

Banco Central de Costa Rica, Informe Mensual de la Situación Económica de Costa Rica (BCCR División Económica, April 2008);
Douglas Belt, Robert Birnbaum, and Lowell Gudmundson, Some Aspects of Costa Rican Political Economy: Balance of Payments and Foreign Investment (ACM Central American Field Program, 1972);
Thomas Grennes, Role of Coffee Exports in the Costa Rican Economy—APAP II, Collaborative Research Report Number 330 (Abt Associates, 1992);
International Monetary Fund, International Financial Statistics (IMF Publication Services, April 2008);
Mosquera, “Costa Rica,” Latin America and Caribbean Quarterly Review and Outlook (Global Insight, First Quarter 2008);
Deborah Sick, “Coping with Crisis: Costa Rican Households and the International Coffee Market,” Ethnology (v.36/3, 1997);
World Bank, Doing Business 2008 (International Bank for Reconstruction and Development, 2007).

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