Analysis of Costa Rica's International Political Economy and Trade

This report provides an analysis of Costa Rica's international political economy, focusing on its trade patterns and economic policies. It examines the country's major exports and imports, trade partners, and trends over the past two decades, revealing a growing trade deficit. The report applies the economic nationalist perspective to suggest government intervention through trade protection measures, such as tariffs on imports, to safeguard domestic producers and reduce the trade deficit. Conversely, it contrasts this with a liberal perspective, advocating for free trade and specialization to boost export earnings and integrate with the global economy. The report concludes that a balanced approach, combining both perspectives, is essential for Costa Rica's economic growth, with government intervention reserved for situations where national welfare is at stake. The analysis considers the implications for the global governance of trade and development.

Running head: INTERNATIONAL POLITICAL ECONOMY
International Political Economy
Name of the Student
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1INTERNATIONAL POLITICAL ECONOMY
Table of Contents
Introduction......................................................................................................................................2
Patterns of trade in Costa Rica.........................................................................................................2
Theoretical perspective for trade protection....................................................................................7
Liberal perspective of trade policy..................................................................................................8
Conclusion.......................................................................................................................................9
References list................................................................................................................................11

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Introduction
In Latin America, one of the stable economy is Costa Rica. The economy continues to be
benefitted from a higher economic growth and associated higher commodity price. The economy
engages in tradition agricultural export such as coffee, sugar, beef and bananas. Export is a vital
source of income within the economy1. There are two popular views of designing economy
policy in a nation. One is economic nationalists that support government or state intervention in
an economy. The other one is liberal perspective that supports free market functioning and
hence, welcome free trade policy. The paper analyzes trade pattern in Costa Rica. Both the view
of economic nationalist and liberal perspective are evaluated in terms of designing economic
policy of Costa Rica.
Patterns of trade in Costa Rica
In the world market, Costa Rica holds the position of 77th largest economy in terms of
export. Nearly a period of three decades ago, trade policy of Costa Rica has undergone a
significant change through the adaption of export-oriented model of economic development. The
basis of economic development model in Costa Rica is based on open up to new markets through
trade and attraction of foreign capital.
The system of foreign trade in Costa Rica is based upon four pillars – a system of
multilateral trade through membership of World Trade Organization, the system of economic
integration through Central American Economic Integration System (SIECA), agreement on
1 Intracen.org. "Costa Rica." Intracen.org. N.p., 2018. Web. 26 Oct. 2018.

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bilateral free trade and agreement on bilateral investment2. All these together make it possible for
a small country like Costa Rica to attain an important position in the world economy.
The main export of Costa Rica includes bananas, needles, catheters, cannulae and others,
Pineapples (fresh or dried), instrument and appliance, different artificial body parts. The major
import of Costa Rica includes Petroleum oil, medicament of mixed and unmixed product,
Automobiles, Transmission apparatus, different articles of plastics. United State, Netherland,
Panama, Belgium and Nicaragua are the top five export partners of Costa Rica. The top import
partners of Costa Rica are United State, China, Mexico, Guatemala and others3.
Bananas Needles,
catheters,
cannulae
Pineapples Instruments
and appliances
used in
medical
Artificial parts
of the body
0.00
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
Top five export
US dollar thousand
Figure 1: Top five exported goods of Costa Rica
2 Urbatsch, Robert. "A referendum on trade theory: Voting on free trade in Costa Rica." International
Organization 67.1 (2013): 197-214
3 worldbank.org. "Costa Rica | Trade Summary | 2016 | WITS | Data." Wits.worldbank.org. N.p., 2018. Web. 26 Oct.
2018.

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Petroleum oils Other
medicaments
of mixed or
unmixed
products
Automobiles Transmission
apparatus Other articles
of plastics
0.00
200,000.00
400,000.00
600,000.00
800,000.00
1,000,000.00
1,200,000.00
Top five imports
US dollar thousand
Figure 2: Top five imported goods of Costa Rica
40.96%
5.81%
5.66%
5.37% 5.22%
Top five export market
United State
Netherland
Panama
Belgium
Nicaragua
Figure 3: Top five export partners of Costa Rica

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37.28%
13.59%
6.96%
3.17
% 2.72%
Top five importers
United State
China
Mexico
Unspecified
Guatemala
Figure 4: Top five import partners of Costa Rica
Figure 5: Export trend of Costa Rica
The figure above shows the trend of the export in Costa Rica in the past few years. As
shown from the figure, there is an increasing trend in exported good. In the August of 2018,
Costa Rica’s export declined to 852 USD million from 929.90 USD million in the previous

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month4. The volume of export reached to the highest level in May 2018 with value of export
being 1064.30 USD Million. The export value was the lowest in 1995 having a value of export of
235.50 USD Million.
Figure 6: Import trend of Costa Rica
In addition to export, import of Costa Rica also shows an increasing trend. Volume of
import declined to 1110.50 USD Million in the month of September from a value of 1408.40
USD Million in August. This helps to lower the trade deficit5. The import volume was highest in
November 2017. The lowest volume of import was recorded in the year 1995.
4 Tradingeconomics.com. "Costa Rica Exports | 1995-2018 | Data | Chart | Calendar | Forecast |
News." Tradingeconomics.com. N.p., 2018. Web. 26 Oct. 2018.
5 Tradingeconomics.com. "Costa Rica Imports | 1995-2018 | Data | Chart | Calendar | Forecast |
News." Tradingeconomics.com. N.p., 2018. Web. 26 Oct. 2018

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Figure 7: Trend in trade balance of Costa Rica
Because of faster growth of import compared to export, there is a continuous decline in
trade balance. The nation in recent years suffer from a deficit in trade balance6.
Theoretical perspective for trade protection
The advocates of economic nationalism are in favor of government intervention in an
economy. In view of growing trade deficit of Costa Rica, the perspective of economist
nationalism might suggest government intervention in form of trade restrictive measures. For a
small nation like Costa Rica, trade restriction protects the domestic producer from foreign
competition. Government of Costa Rica should restrict high volume of import in the nation. One
important import of Costa Rica is Rice7. Government can restrict the free exchange of rice by
imposing a tariff on rice import. There is already a tariff of 35% on imported rice. Government
should tighten the trade policy measure by increasing the tariff rate. The increased trade
6 Tradingeconomics.com. "Costa Rica Balance Of Trade | 1995-2018 | Data | Chart |
Calendar." Tradingeconomics.com. N.p., 2018. Web. 26 Oct. 2018
7 Lovett, John, and Grant Ferguson. "An Economic Analysis of the 1st Nationalist Movement of 1783." Public
Choice Analyses of American Economic History. Springer, Cham, 2018. 1-26

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protection would help to reduce the import volume and trade deficit would reduce accordingly.
This would also help to increase competitiveness of domestic agricultural sector.
In recent years, Costa Rica has accounted a decline in the availability of agricultural
product for domestic reason. One primary reason for this is the large volume of export of
agricultural good to its trading partners. Government thus should intervene in the domestic
market and monitor production of grains, cereals, oil seeds, pulses and other necessary
agricultural product to ensure sufficient availability in Domestic consumption. Further protection
should also be restored for some industrial product such as steel rod. Steel rod is an important
input in construction sector8. To safeguard domestic manufacturer of steel, protection should be
given in form of a significant import tariff on steel rod.
Liberal perspective of trade policy
The advocates of liberalism on favors economic openness. From a liberal perspective,
Costa Rica should facilitate free trade policy. According to economic liberalism, reduction in
tariff barriers results in creation of trade. Free trade helps the nation to switch to low cost
producers from high cost one. Instead of restricting import, Costa Rica should focus on
specialization in line of its comparative advantage and increasing integration with global
economy. The higher export can increase export earnings and help to narrow down trade deficit.
The main competitive advantage for export sector of Costa Rica is labor productivity and high
training and education level9. The labor force in Costa Rica thus is highly skilled and is able to
produce high-end products.
8 Centralamericadata.com. "Protectionism In Costa Rica - Centralamericadata :: The Regional Business
Portal." Centralamericadata.com. N.p., 2018. Web. 26 Oct. 2018
9 O'brien, Robert, and Marc Williams. Global political economy: Evolution and dynamics. Macmillan International
Higher Education, 2016.

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Production and export in line with specialization benefits a nation in various ways. From
bulk production of exported goods, the country can enjoy benefits of economies of scale. The
scale benefits are particularly applicable for industries that involves a very high fixed cost. This
in turn results in a lower price for consumers and increases efficiency of domestic sellers. With
increasing trade volume, producers face competition from abroad. This induces producers to
adapt cost efficient production technology for efficiently competing with their foreign
counterpart.
Few year ago, Costa Rica restricted avocado import by imposing a high import tariff on
Mexican import. Now with expansion of export of different types of fruit, the local market no
suffers from a shortage of these fruits10. Elimination of trade restriction helps to resolve this
issue. Free trade also offers access to cheap raw materials, which result in expansion of different
industries.
Conclusion
Costa Rica despite being a small nation has made significant progress in international
trade. The past year trend in export and import have revealed that both import and export have
increased continuously. However, because of faster growth of import compared to export the
nation experiences a trade deficit. Depending on current position of trade policy recommendation
can be made using different economic theories. Following economic nationalist theory Costa
Rica need some state intervention to improve its trade balance. In contrast, from liberal
perspective Costa Rica should opt for free trade regime. In an integrated world, nation need to
adapt a combination of both policies. That is the nation should adapt a free trade policy to
10 Kirman, Alan. "The Complex Nature of Economic Liberalism." History of Economic Ideas 24.3 (2016): 47-76

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achieve a smooth path of economic growth. The government however should intervene only in
circumstances where international openness hampers national welfare.

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References list
Centralamericadata.com. "Protectionism In Costa Rica - Centralamericadata :: The Regional
Business Portal." Centralamericadata.com. N.p., 2018. Web. 26 Oct. 2018.
Intracen.org. "Costa Rica." Intracen.org. N.p., 2018. Web. 26 Oct. 2018.
Kirman, Alan. "The Complex Nature of Economic Liberalism." History of Economic Ideas 24.3
(2016): 47-76.
Lovett, John, and Grant Ferguson. "An Economic Analysis of the 1st Nationalist Movement of
1783." Public Choice Analyses of American Economic History. Springer, Cham, 2018. 1-26.
O'brien, Robert, and Marc Williams. Global political economy: Evolution and dynamics.
Macmillan International Higher Education, 2016.
Tradingeconomics.com. "Costa Rica Balance Of Trade | 1995-2018 | Data | Chart |
Calendar." Tradingeconomics.com. N.p., 2018. Web. 26 Oct. 2018.
Tradingeconomics.com. "Costa Rica Exports | 1995-2018 | Data | Chart | Calendar | Forecast |
News." Tradingeconomics.com. N.p., 2018. Web. 26 Oct. 2018.
Tradingeconomics.com. "Costa Rica Imports | 1995-2018 | Data | Chart | Calendar | Forecast |
News." Tradingeconomics.com. N.p., 2018. Web. 26 Oct. 2018.
Urbatsch, Robert. "A referendum on trade theory: Voting on free trade in Costa
Rica." International Organization 67.1 (2013): 197-214.
worldbank.org. "Costa Rica | Trade Summary | 2016 | WITS | Data." Wits.worldbank.org. N.p.,
2018. Web. 26 Oct. 2018