How Costa Rica became an FDI powerhouse

Costa Rica has become a world leader in attracting FDI. We talked with the former Minister of Foreign Trade to find out how.

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As of 2023, medical devices account for around 30% of Costa Rica’s export value, outranking classic agricultural exports like bananas and coffee. And medical devices are just the latest in a long line of manufactured export success stories which have seen Costa Rica transformed by investment from large multinational companies.

In this episode of Ideas in Development, we ask how Costa Rica, a small country of approximately 5 million people, became an attractive hub that now hosts operations for over 1000 multinationals.

To take us through the economic history of Costa Rica, we’re joined by Andres Valenciano Yamuni, who played his own role in Costa Rica’s FDI journey during his time as Minister of Foreign Trade. We discuss the policy choices that made this happen, what other countries can learn from Costa Rica’s experience, and how to get stuff done in government.

Costa Rica’s unlikely transformation into an FDI powerhouse

Investment from large multinationals has steadily reshaped the country’s economy, moving it into advanced manufacturing and, more recently, knowledge-intensive services.

As Andrés puts it,

“Costa Rica's story, it's an interesting one because I think it can serve as an example of how a small country can actually become very interconnected with the global economy and become a leader, a global leader in many aspects.”

The story begins with the economic crisis of the 1980s, and a lost decade of growth. That shock forced Costa Rica to rethink its model and embrace an export-led growth strategy from the early 1990s. Over the three decades since, that strategy has evolved from a bold move to attract Intel’s semiconductor plant, to creating world-class clusters in medical devices, and now to becoming the number one exporter of knowledge-intensive services per capita in Latin America.

Costa Rica now has 15 free trade agreements that connect it with roughly 75% of the world’s economy, and FDI flows have been remarkably resilient and diversified. But this didn’t happen automatically – it has required experimentation,feedback from firms, and a long-term cross-party commitment to openness.

Building the institutions for an export-led growth model

A central theme of our conversation with Andres was institutional design. Costa Rica’s FDI story is about more than good macro fundamentals; it required creating the right public-sector organisations and giving them the autonomy and incentives to deliver.

In the 1980s and 1990s, three core institutions were created to support the export-led model:

Ministry of Foreign Trade (COMEX) – responsible for trade policy, FTA negotiations, and overall FDI strategy.
CINDE – the investment promotion agency.
PROCOMER – the export promotion agency and administrator of the free trade zone regime.

These three bodies work in tight coordination with one another, and, crucially, with the private sector. In fact, PROCOMER’s board has a majority of private-sector representatives, but is then chaired by the Minister of Foreign Trade.

Another institutional innovation is the free trade zone regime, which offers fiscal incentives in exchange for meeting strict criteria. Over time, Costa Rica has refined how firms are selected, especially in services. Andrés describes how they designed a home-grown index to assess applicants based on:

Whether they are in strategic sectors
Number and quality of jobs created
Wage levels
Potential for linkages with local firms

In his words:

“We want to make sure that the companies that we attract first and foremost are sectors that are strategic to the country.”

This has helped Costa Rica to avoid merely becoming a tax haven, and has ensured that incentives go to firms that generate broader development benefits.

What Costa Rica gets from multinationals

Many countries judge FDI success purely by the amount of capital inflows. Costa Rica takes a broader view. Andrés stresses that they look beyond “the amount of dollars that they bring” to the quality and distribution of benefits:

Are investments in strategic sectors?
Do they generate good-quality jobs and skills?
Do they create linkages and spillovers to local firms?

The Central Bank, working with PROCOMER and CINDE, conducts regular evaluations of the free trade zone regime. Their estimates suggest that each dollar of tax incentive returns about two dollars in benefits to Costa Rica.

Costa Rica has also created a formal linkages programme to match multinationals with local suppliers and reduce information asymmetries on both sides – helping domestic firms upgrade quality, earn certifications, and integrate into global value chains. Rigorous research has shown that these linkages increase wages, productivity and growth for local companies that become suppliers.

Andres mentioned the risk of an unbalanced model. High-skill FDI jobs tend to cluster in urban areas, while agriculture remains the main employer in coastal and rural regions. During his time in office, Andrés and his colleagues bet big on relaunching agriculture as a strategic sector.

“FDI not only [is] an issue about dollars… but also about job creation and improving, let's say, national development as a whole.”

How to attract multinationals: Talent, trust, and “Learning by Doing”

When we asked what it takes to attract FDI in a competitive world, Andrés warned against simplistic checklists:

“First, I would caution against … a laundry list approach”

There are a certain set of basics that are an important starting point – political stability, macroeconomic credibility, infrastructure, connectivity, the rule of law. But in practice, decisions tend to depend on very specific constraints and solutions that are uncovered through a process of “learning by doing” with firms.

Examples Andres identifies include:

Talent and skills: It is not simply a case of have lots of ‘accountants’. If firms serve US clients, they need english speaking accountants trained in US rules. Similar subtleties arise in fields like cybersecurity, where different firms mean very different things by “cybersecurity technician”. Policymakers had to move from job titles to competency-based definitions to design training that works across companies.
Quality of life and connectivity: Senior decision-makers often care about flight connections, international schools, and hospitals. These ‘small’ considerations can be decisive for where they set up regional HQs.
Clean energy and ESG metrics: Many multinationals now have KPIs on water and carbon. Costa Rica’s electricity mix – 99.5% of which comes from renewable energy – can therefore be a strong selling point.
World-class industrial parks: In Costa Rica, these are privately operated, which creates competition between parks to offer high-value services – reliable power, transport for workers, continuous education on-site, green areas and amenities. This makes the landing process for new investors smoother and helps them quickly staff operations with local talent.

Throughout, Andres frequently highlighted the importance of talent. Companies consistently ask how quickly their operations can be fully run by locals, rather than expatriates. Costa Rica’s answer has thus been to align technical institutes, universities and even postgraduate programmes with the needs of sectors such as medical devices and advanced services – often in partnership with industrial parks themselves.

Making collaboration work: Who’s around the table?

Another recurring theme in this episode was how public–private collaboration is actually done in practice. Costa Rica uses a cluster approach in sectors like medical devices, bringing together government and firms. But Andrés emphasises that these spaces only work if the right people show up:

On the public side, senior officials with real decision-making power, not just junior representatives.
On the private side, individuals who can see beyond “their square metre” and understand ecosystem-wide benefits.

He notes that cluster meetings often fail elsewhere because each side sends people without authority, turning them into talking shops rather than forums where problems can be solved.

Costa Rica avoided this eventuality by carefully selecting participants – for example, involving multinational executives who have run similar clusters in other countries and understand what it takes to build an ecosystem.

Lessons for other countries – and a research agenda for academics

Can other countries just copy Costa Rica? Andrés is cautious. He argues that it is more useful to replicate the questions and processes than the exact policy mix:

What are your truly strategic sectors?
What role should FDI play in developing them?
Do you have the organisational capacity and coordination mechanisms to deliver?
How will you ensure FDI is a tool for development, not an end in itself?

He reminds listeners that Costa Rica started from an advantageous base: long-standing democracy after abolishing its army in 1949, heavy investments in education, and early signals of openness to the global economy. Other countries will have different starting points and constraints.

And looking ahead, Costa Rica’s own challenge is to move from FDI-driven growth to nurturing home-grown multinationals that can scale globally. There are early successes – one example is a Costa Rican-founded global leader in breast implants and surgical devices – but the ambition moving forwards is to see many more domestic firms emerge from the ecosystem that has traditionally been built around foreign investors.

In the final segment, we took the opportunity to ask Andrés about academia. He believes a crucial area remains under-researched:

“One of the biggest areas… is this execution gap… I think if you go around the world asking policymakers, they have an idea of what needs to be done. The big challenge is, you have, again, the organizational capability to deliver on those”

He calls for more research on institutional design and organisational capability – how to hire, motivate and structure public agencies so they can actually implement policies and get stuff done. He notes that PROCOMER operates under a different personnel regime to the civil service, one that is closer to the private sector and helps it attract world-class civil servants. Elsewhere in government, exceptional performance often happens despite the system rather than because of it.

Andrés ends the episode with a memorable sports metaphor, borrowed from researcher Amir Lebdioui:

“He says it's not bowling, it's more like curling. The sport in bowling, you throw the ball and then the ball goes and you have no control over it. With curling, you actually launch it and then there's a team of people who are making small adjustments as you go.”

For Andres, this captures what effective industrial and FDI policy looks like: not a one-off decision, but a continuous process of adjustment, learning, and coordination between capable institutions and engaged private partners.

Supported by

How Costa Rica became an FDI powerhouse

Andrés Valenciano Yamuni

Kartik Akileswaran

Oliver Hanney