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Foreign Investment, Development, and Globalization: Can Costa Rica Become Ireland? (review)

From: Latin American Politics & Society
Volume 49, Number 4, Winter 2007
pp. 206-208 | 10.1353/lap.2007.0051

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The subtitle of this book asks an interesting, though narrow, question; and although the book does indeed examine whether Costa Rica can break out of the development trap, embrace globalization, attract foreign direct investment (FDI), and undergo a stunning transformation similar to that of Ireland's economy over the last 20 years, its conclusions are much broader and applicable to all middle-income countries. The author's nuanced argument necessarily concludes without a solid road map for middle-income countries to follow and become "Ireland." Instead, the author answers the question with a resounding "possibly."

The book contains 7 chapters, 44 tables, 5 figures, and 2 graphs. Chapter 1 lays out the puzzle of late development and presents it in a theoretical framework; that is, examining how the "interactions of different conditions and policies can have different consequences for the nature and results of the globalization-development nexus in individual countries" (2). The chapter also spells out the book's central argument: small latecomers in the development process "(SLC) will reap long-term benefits from high-tech FDI only if [transnational corporations'] TNCs' strategic and global interests and SLCs' capabilities coincide" (2). The author uses a framework that focuses on "determining forces behind three main categories: TNCs' strategic global needs, SLCs' location-specific assets, and SLCs' linkage capability" (3). She argues that market failure in SLCs has resulted in domestic producers' inability to compete with TNCs. SLC governments therefore need proactive policies "aimed at enhancing SLCs' location-specific assets, fostering a continuing match between TNCs' needs and SLCs' assets and promoting the expansion of indigenous capabilities for linkages and technology absorption"(3).

Chapter 2 further develops the book's framework, drawing on four existing literatures in the field of development economics: development of indigenous technology capabilities; conventional economic literature on FDI; dynamics of international production networks; and literature on cluster formations (6). The chapter examines what factors lead high-tech FDI to invest in SLCs.

Chapers 3 and 4 are a case study of Ireland's recent economic development. First, the question of location is examined. The author concludes that location was fundamentally important in Ireland's ability to attract high-tech FDI. Related factors included the increase in demand for PCs in Europe (Ireland, as a member of the EU, enjoyed various benefits of unhindered free trade within the EU and protection from non-EU producers). Ireland's location became critical in attracting TNCs with the EU's creation of "Opportunity and Fortress Europe," resulting from the Single European Act of 1986. Ireland's ability to attract TNC high-tech investment was further enhanced by another locational benefit: the dramatic increase in EU structural funds after 1992, which Ireland used to fund educational and infrastructure projects (75).

Chapter 4 further examines the problems Ireland faces in the contemporary period to maintain its attractiveness to TNCs. The chapter also suggests some policies the Irish government will need to follow to maintain its position and to address some of the more pressing problems caused by the investment by high-tech TNCs, such as income inequality.

Chapters 5 and 6 parallel the preceding two chapters on Ireland and examine Costa Rica's development history. Chapter 5 highlights the country's economic transition from an agricultural economy producing mainly coffee and bananas to a high-tech economy producing products such as microchips. Chapter 6 examines some of the dilemmas of Costa Rica's development choices and considers the lack of linkages between the TNCs' investment in high-tech companies and Costa Rican companies. The author argues that the government of Costa Rica "needs to adopt a proactive strategy in order to achieve higher growth" and to "minimize the fallout and maximize the benefits from upcoming changes in international trade policies" such as the Central American Free Trade Agreement (CAFTA) and the rise of China, India, and Eastern European competitor countries (185).

Chapter 7 examines the lessons of the two countries' experience with TNC FDI. The author also explicitly and succinctly answers her original question, "Can Costa Rica become Ireland."

While the book identifies Costa Rica's track record of incomplete follow-through in state direct development policy, it only touches on the politics...



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