ABSTRACT
Costa Rica is a small country that, unlike its Central American neighbouring countries, has managed to attract considerable high-tech FDI over the past decade. This has contributed to improving its export performance and terms of trade (Ciarli and Giuliani, 2005). However, very little is known of the impact that such FDI has had on the formation of well-functioning MNC-dominated clusters (Altenburg and Meyer-Stamer, 1999) and on the upgrading processes of domestic firms, which may link up to MNC located in the country. Drawing on the literature about the role of Multinational Companies and Global Value Chains (Gereffi, 1999) for development, this chapter explores the impact of foreign investors in the electronics and medical device (hereinafter EMD) industries on the learning and upgrading processes of Costa Rican firms. Moreover, this chapter explores whether these processes of knowledge transfer lead to the formation of well-functioning EMD MNC-dominated clusters in Costa Rica, as suggested by Altenburg and Meyer-Stamer (1999). These are clusters formed around the multinationals that have been attracted to invest in the Export Processing Zones (EPZ) as an explicit instrument of economic policy from the 1990s onwards. Our aim is to assess whether the inclusion of local producers into Global Value Chains lead by EMD multinationals has ignited any upgrading of their products, processes, or functions. The chapter shows that the majority of local firms has upgraded products and processes, while only a small share has upgraded their functions. Upgrading, especially of production processes, occurred to a large extent as local firms attempted to comply with the requirements of multinationals in order to become suppliers. Only in a few cases the linkages established with multinationals seem to have directly promoted upgrading. In most cases multinationals provided the demand stimulus for local firms to upgrade, but did not actively support it.
