Intel: A Case Study of Foreign Direct Investment in Central America

Abstract

This paper studies the advent of Intel, manufacturer of microprocessors, to Costa Rica. We use indicators of both direct effects and selected macroeconomic effects as evidence, even though these indicators are in some cases more qualitative than quantitative. We also examine training externalities, as well as the “signaling” effect that Intel has had on other firms’ decision to enter the Costa Rican economy, thus making Intel itself into a factor of attraction.

The gross income generated by Intel in terms of net exports, investment, wages and benefits, and local purchases is very important for the Costa Rican economy. Net exports and the economy as a whole have been growing at a significantly higher rate since 1997, the year Intel started operations in the country. Also, the share of natural resource-based exports in total exports has declined while the share of manufactures has risen significantly. This has implied a dramatic change in the composition of Costa Rica’s exports. Available evidence supports the view that Intel has generated positive externalities for the Costa Rican economy.