Launch of the OECD Economic Survey of Costa Rica: Research findings on productivity from firm-level, trade and sectoral data

 

Remarks by Angel Gurría

OECD Secretary-General

San José, Costa Rica - 18 April 2018

(As prepared for delivery)

 

 

 

Minister Mora, Ladies and Gentlemen,

I am delighted to launch the “OECD Economic Survey of Costa Rica: Research findings on productivity from firm-level, trade and sectoral data”. I would like to thank Minister Alexander Mora and the General Manager of the Central Bank of Costa Rica, Emmanuel Prado, for the active collaboration that both they and their teams have given us in this project. The access to data at the level of individual firms provided by the Central Bank was essential to complete this research.

 

Productivity growth is low

The importance of boosting productivity is uppermost in the mind of public policy makers everywhere in the world. However, despite the dizzying pace of technological progress, productivity growth in OECD countries has remained low. Average annual productivity growth in OECD countries fell from 2.2% in 2000 to a low point of 0.6% in 2010; it has recovered a bit since then, rising to 1% in 2016. This is a deep concern for all our governments.

 

The reason why productivity growth is weak while technological progress is fast is puzzling. The OECD has analysed this issue and has concluded that it is partly due to the diverging trend in productivity between firms at the frontier of technology and those that lag behind. This suggests that the traditional diffusion of knowledge between these two groups of firms is no longer a given.

 

In addition, unproductive firms are allowed to survive and thus trap scarce resources that could be employed more profitably by more productive firms. We call them “zombie firms”. We must pay more attention to barriers to exit, and particularly to bankruptcy and insolvency procedures which are excessively slow and costly.

 

This new publication takes stock of the most recent findings and uses them to investigate the drivers of productivity in Costa Rica. It contains original research produced during the preparation of the 2018 OECD Economic Survey of Costa Rica, which we launched yesterday.

 

Costa Rica has made major advances

The book brings some good news. First, productivity growth has accelerated. While it was slowing down in OECD countries, productivity rose in Costa Rica from 1.4% in 2010 to 2.3% in 2016. This is due to the reallocation of resources from low-productivity firms to high-productivity firms. This process has not taken place automatically, but as a result of favourable policies.

 

Second, the country is attracting foreign direct investment which promotes greater integration into global value chains. FDI inflows have also helped local firms gain access to new knowledge, through technology spillovers.

 

Third, opening your doors to international trade has served you well: the research finds strong performance of exports both in traditional sectors – for example, food items such as pineapple and coffee – and in more complex products.

 

There is potential for further productivity growth

However, these encouraging trends should not lead to complacency. There is potential for further productivity growth. For this to happen, it is crucial to continue with the most fruitful policies while taking a number of additional measures. Allow me to highlight some of them:

• It is crucial to keep up opening your borders to international trade so as to benefit from existing opportunities. Our research shows that there are large untapped export opportunities for Costa Rican firms, notably in high-tech medical devices, where you are already an important stakeholder. 
  
  
• It is crucial to attract more foreign firms and get more out of the knowledge they bring with them, so that Costa Rica can continue to climb the technology ladder. 
  
  
• It is equally crucial to further strengthen the functioning of markets, by promoting competition and the ease of doing business, by lowering barriers to entry and to exit, and by increasing the fluidity of labour markets – this has served you well in the past and can continue to do so in the future. 
  
  
• Last, it is essential to continue to move forward with structural reforms focused on education and on the competencies, skills and abilities needed to provide the country with the human capital that it needs and that is adapted to the challenges and opportunities of the 21st century. In this respect, it is also essential to reduce informality. 

 

In short, we need to improve school results, invest more in education and vocational training, build more roads and airports, and make it easier to do business. But we also need to strengthen the link between productivity and inclusion, since both go hand in hand. We need these reforms to promote a more productive and dynamic economy, while at the same time allowing the benefits of growth to be distributed in a broader and more inclusive manner.

 

Ladies and gentlemen,

The book launched today testifies to our enormous commitment to Costa Rica. The OECD looks forward to continuing its close collaboration with the incoming government to formulate policies that will boost productivity and inclusion. You can count on the support of the OECD.  Thank you.

 

 

See also:

OECD work on Economy

OECD work with Costa Rica