Foreign Direct Investment in Costa Rica

This paper examines the factors that drive foreign direct investment in Costa Rica and evaluates its broader macro and micro level impacts, specifically on infrastructure development and knowledge spillovers. Drawing from data between the years of 1995 and 2012, the study employs a statistical analysis to investigate how institutional quality and investment into infrastructure influence the attractiveness of Costa Rica and the inflows of foreign direct investment, along with whether FDI contributes to domestic productivity through the transfer of knowledge. Results show that there is a strong correlation between infrastructure development and increased FDI, even without consistent high-quality institutions. While foreign direct investment is positively correlated with government investment into education and research and development, its effect on productivity has less measurable outcomes. This suggests that FDI encourages investments into greater capacity for knowledge but does not automatically transfer into productivity gains. The study contributes to a deeper understanding of how an emerging market like Costa Rica can optimize the benefits of foreign direct investment.