Development in Costa Rica: The Key Role of Agriculture

Costa Rica is a relatively small country (50,000 square kilometers) with a population of only 2.7 million inhabitants. Its economy is small (GDP $4.7 billion), relatively open (annual imports account for 35 percent of GDP), and relatively poor (per capita yearly income is $1,600). Demographic and economic growth during the period after World War II was extremely rapid: between the periods 1950-52 and 1975-77 its population doubled, as did real per capita income. The 1980s, however, might well be labeled a lost decade. After the second oil-price shock at the end of the 1970s, the economy fell into its worst crisis in more than half a century. The effort to resolve the crisis consumed most of the available resources for several years. It has only been in the past few years that the pace of economic growth has more or less returned to a satisfactory level. Still, economic growth, real per capita income, and affluence indicators remain below precrisis levels. Economic growth in Costa Rica can be attributed to three principal factors: First, it took advantage of the opportunities offered by external markets, both the global ones (in coffee, bananas, and later sugar and beef), and the regional ones (in manufactured products for the Central American Common Market, CACM). Second, the government's economic policy has by and large maintained economic stability. Thus Costa Rica has avoided the tremendous instability, particularly inflation, that has troubled the economies of many other Latin American countries and created a serious obstacle to higher savings rates and internal investment, as well as foreign investment. Third, the country's long-term social policy has channeled a significant proportion of public expenditure into education and health, as well as into a wealth and income distribution scheme that has addressed inequalities. These policies have enabled Costa Rica to create a framework of social and political stability that has facilitated economic development. Agriculture has played a vital role in this growth. It has contributed to every aspect of economic activity: GDP, exports, food supply, the production of raw materials for the industrial sector, and employment opportunities. As ex-