Holistic and participative approaches to water management

In the introduction, we posed the question: How has the governments of Costa Rica used FDI to increase production in high-tech manufacturing and what has been the impact of the strategy pursued? In order to answer the question we started out by examining the history of economic development in Latin America and Costa Rica’s place in that history. We found that Costa Rica shared a lot of the same development patterns as the rest of the region most noticeably regarding the shared experiences of a debt-driven ISI strategy which led to an economic crisis followed by austerity measures and deregulation in collaboration with the International Monetary Fund, World Bank and in the case of Costa Rica also USAID. We found that this strategy by extension led to a bigger emphasis on FDI as a tool for economic growth and that due to the relatively educated and relatively cheap skilled labour, which Costa Rica possessed, made them competitive in attracting this FDI. In addition, we found that the political stability and general commitment to an FDI driven economic

development which included substantial incentives for foreign investors had a big importance in regards to attracting FDI. We also discover, however, that this “loose”

approach to FDI has come with its costs. Costa Rica has not been able to offset its significant trade deficits, mainly due to the decreasing tariffs included in the

neoliberal reforms increasing competition for local producers. Additionally, the FDI led strategy has not been able to significantly increase tax revenues, which will make it harder to keep a competitive advantage or upgrade productive capabilities. There has also been the increase in inequality apart from the social consequences of this can under certain conditions cause an increase in criminal activity. There has been a low degree of knowledge spillovers. We have found that this is in large part is

because of an inability to create linkages between the foreign firms, usually operating in the Export Processing Zones, to domestic producers since the latter having been able to compete with the duty free foreign imports. We have mainly

theoretical framework, which highlight a pro-active and regulatory stance on FDI.

Other benefits from FDI in Costa Rica include a few linkages to local producers of low and medium manufactured goods, a few years after the initial Intel investment with a better trade balance, and wage increases for employees working in the Export Processing Zones.

The main problem here is that the incentives provided for FDI, which include beneficial tax exemptions, have structured the Costa Rican economy in a way that has promoted investments that only provides limited tax revenues and linkages to domestic producers. While such problems to FDI are not new one could point to the probability that Costa Rica might not have been able to produce high-tech

manufactured goods without the assistance of Transnational Corporations as the level of the sophistication in the local economy is perceived as lower compared to the western countries that operate in these industries.

The low degree of supplier linkages as a crucial aspect where possible revenue and industrial development of course theoretically could have been created. This is a point where some economists are likely to focus on the absorptive qualities of the host nation and might just conclude that they have not been present to a satisfactory degree. This may or may not be true in Costa Rica, but the most important thing to emphasise is that there has not really existed the circumstances to test out the absorptive capabilities of the Costa Rican economy because there has not been any content requirements or the like to trigger linkages between local and foreign firms.

What we have here is more of a “Myrdalian” phenomenon, where the most

productive parts of the economy is separated from the rest of economy. The main reason being that global circumstances have created competition on the part of middle-income countries trying to attract high-tech FDI that is much larger than at the time of the development of the East Asian Miracles. So while it is easy, and perhaps advisable, to use the East Asian Miracles as a proxy for good development we find that it might be hard to argue that the same constructive regulative policies would have been feasible in this period. A constructive target for further inquiry therefore

This might be able to shed light on how much regulation a country can expect to impose on FDI and if it in the international economy of today the FDI strategies pursued by countries such as South Korea and Taiwan are feasible.

Regardless, the strategy pursued by the different Costa Rican governments has put the country into an FDI led development trajectory which does not provide sufficient linkages to the rest of the economy will quite possibly make it hard for the country to keep an edge over other competitors and with the possibility of newcomers into the sector and the rise of China might provide an even gloomier future prospects. An example of this could be the decision of Intel, the biggest exporter of costa rica, to move its manufacturing of semiconductors to China at the beginning of 2015, reducing its number of employees in Costa Rica by approximately 50% (Rodriguez, 2014; Barquero, 2014). Again, due to the inability to provide linkages with local industry Costa Rica will probably continue to have problems with its trade balance in the future, as the duty-free imports most likely will be too competitive for local

producers. It will be interesting to see if any future administrations, will change the current policies and adapt a more regulatory stance on FDI in order solve these structural issues within the Costa Rican economy. Looking at our theoretical framework it would be beneficial for the Costa Rican state to for instance set input requirements for foreign firms, or slowly demand a tax of the revenues generated by foreign firms.