Policy Coordination: From FDI to a Broader Framework to Promote Innovation—The Case of Costa Rica

Abstract

In recent decades, Costa Rica viewed FDI attraction as a strategic option to sustain growth, promote structural change, and create better jobs. The successful record of FDI investment in the country fostered profound changes in the country’s trade specialization, inducing derived demands for new and better skills in the population and wider availability of entrepreneurial and technical capabilities in specific industrial clusters. In fact, labor mobility from global to domestic firms has had a positive impact on rate of creation and survival of knowledge-intensive firms in the country (Monge-Gonzalez 2012). However, the linkages between local and foreign companies in Costa Rica are still weak, and RD Crespi, Nota Tecnica sobre el Sistema de Innovacion en Costa Rica. IDB Technical Note, 2010). In this scenario, Costa Rica, joining an emerging world trend, has been shifting gradually toward a more selective policy approach to FDI by targeting certain knowledge-intensive sectors, while some global firms have recently moved toward more sophisticated activities in the country. In fact, the private sector concentrates slightly more than 2,000 employees working on R&D, out of 6,000 that the country totals. The success of this new endeavor will depend on the coordination and the capacity to “activate” OCDE (Attracting Knowledge-Intensive FDI to Costa Rica: Challenges and Policy Options, OECD Development Centre, Making Development Happen Series No. 1, Paris, 2012) government policies beyond investment promotion, per se. Public institutions like CINDE have earned a reputation for their success in attracting high-tech FDI and coordination capabilities across the public sector and timely response to specific private demands. Similarly, the more recent creation of the Presidential Council for Competitiveness and Innovation (PCCI) in 2010 aims at improving the governance of this new approach to development, through the coordination of the needed policies. The contribution of this chapter is twofold. First, it will discuss to what extent the national policies and institutions have so far contributed to promote the exhibited upgrading of local operations. Second, it will describe the current efforts to move to a wider development strategy, where the focus is on knowledge-intensive activities and innovation.