What Cuban Economists Can Learn from Costa Rica

A recently released report, entitled "Economic Growth and Restructuring through Trade and FDI: Costa Rican Experiences of Interest to Cuba," found that Cuba could learn a few lessons from Costa Rica. While halting reforms in Cuba have failed to revitalize the island nation's economy, the exact opposite has remained true in Costa Rica, where significant strides have been made over the past three decades in terms of reducing poverty and promoting trade.

The report highlights the fact that Costa Rica now ranks second in all of Latin America in per-capita cumulative output growth. According to the report, this can be attributed to Costa Rica's export-based economy. The report goes on to point out that Costa Rica and Cuba are not that different, at least in terms of economic advantages. Both countries share an abundance of human capital. Additionally, both countries have invested heavily in health and education, more so than would ordinarily be expected given that both Costa Rica and Cuba have similar levels of development and income. Additionally, a strong emphasis is placed on the role of the state in both countries in terms of promoting equitable income distribution. In neither country, do fossil or mineral energy resources play a significant role.

Prior to the 1980s, Costa Rica did well to export $1 billion in goods and services annually. Those exports were primarily limited to three commodities that were agricultural in nature; coffee, sugar, and bananas. Today, as a result of aggressive promotion policies and increased trade liberalization, the volume of exports in Costa Rica has increased. Furthermore, exports from Costa Rica are now more diversified than ever before.

In recent years, Costa Rica has begun the transition way from central planning. Even so, the country holds a significant portion of its economy, largely in the form of state enterprises. This is a situation that is familiar to Cuba. Still, some changes have come to Cuba, particularly since Raul Castro took over the presidency in 2008. Among those changes are relaxation of rules regarding the regulation of mobile phone usage, overseas travel, Internet access and small-scale business formation. Other changes have included plans to phase out the country's use of a dual-currency system. One area where Cuba does differ from Costa Rica is a lack of bureaucrats with whom the international community is able to engage.

In Costa Rica, foreign investment has continued to pour into a number of different sectors, including medical equipment, electronics, business process outsourcing, and life sciences. While Costa Rica does, in some regards, serve as a model, Cuba remains unique and those differences would need to be taken in context. Furthermore, it must be taken into consideration that the process of opening up state-owned enterprises in Costa Rica has been slow. That process began by opening up the banking sector two decades ago, a process that was followed by opening the telecom and insurance industries. The total process took a number of years and occurred under different circumstances that those that currently exist in Cuba, including the fact that Costa Rica was not under an embargo.