2014 Index of Economic Freedom

Costa Rica

overall score66.9
world rank53
Rule of Law

Property Rights50.0

Freedom From Corruption50.9

Limited Government

Government Spending90.0

Fiscal Freedom80.0

Regulatory Efficiency

Business Freedom64.9

Labor Freedom53.3

Monetary Freedom76.3

Open Markets

Trade Freedom83.8

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 4.7 million
  • GDP (PPP):
    • $58.8 billion
    • 5.0% growth
    • 3.1% 5-year compound annual growth
    • $12,606 per capita
  • Unemployment:
    • 7.5%
  • Inflation (CPI):
    • 4.5%
  • FDI Inflow:
    • $2.3 billion
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Costa Rica’s economic freedom score is 66.9, making its economy the 53rd freest in the 2014 Index. Its overall score remains virtually unchanged from last year, with improvements in freedom from corruption, business freedom, and momentary freedom offset by the erosion of labor freedom, fiscal freedom, and trade freedom. Costa Rica is ranked 9th out of 29 countries in the South and Central America/Caribbean region, and its overall score is higher than the global and regional averages.

Over the 20-year history of the Index, Costa Rica has been consistently rated a “moderately free” economy. Improvements in three of the country’s 10 economic freedoms, including trade freedom and monetary freedom, have been offset by deteriorations in labor freedom, business freedom, and fiscal freedom, and its overall score has declined over the 20-year period by 1.1 points.

Costa Rica continues to lag in promoting the effective rule of law. The judicial system, while transparent, remains vulnerable to political interference, and property rights are not strongly protected. Lingering corruption further undermines the emergence of more vibrant economic activity.

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Background

Costa Rica’s history of democratic stability has contributed to one of Latin America’s highest levels of foreign direct investment per capita. The portion of the population living in poverty, however, has remained above 20 percent for nearly two decades, and the social safety net has begun to unravel due to growing fiscal constraints on public spending. President Laura Chinchilla has come under increasing criticism for corruption and her government’s lack of transparency. While Costa Rica remains safer than many of its neighbors, it is experiencing rising crime rates. It also has an ongoing border dispute with Nicaragua. Costa Rica has benefited from foreign investments in electronics and health care, and the Central America–Dominican Republic–United States Free Trade Agreement (CAFTA–DR) has opened insurance and telecommunications to private investors.

Rule of LawView Methodology

Property Rights 50.0 Create a Graph using this measurement

Freedom From Corruption 50.9 Create a Graph using this measurement

Enforcement of Costa Rica’s laws against corruption has sometimes been limited, but a series of high-profile cases in recent years involving directors of state-owned enterprises as well as two ex-presidents has resulted in some convictions. The judicial branch is independent, but there are often substantial delays in the judicial process. Property rights are secure, and contracts are generally upheld.

Limited GovernmentView Methodology

Costa Rica’s top individual income tax rate is 25 percent, and the corporate tax rate is 30 percent. Other taxes include a general sales tax and a real property tax. Total tax revenue is 21.9 percent of GDP. Government expenditures are 18.2 percent of GDP, and public debt has been around 35 percent of GDP.

Regulatory EfficiencyView Methodology

No minimum capital is required to start a company, but it takes almost two months to do so. Obtaining necessary permits takes over 100 days and costs more than the level of average annual income. Rigid labor regulations continue to hamper dynamic employment growth. The government maintains price controls but announced in June 2013 that it will eliminate price support for rice in 2014.

Open MarketsView Methodology

Costa Rica’s average tariff rate is 3.1 percent. Foreign investors can find the country’s legal and regulatory systems difficult to navigate in a timely manner. The financial sector remains relatively resilient and continues to expand. Despite increased market competition, however, state-owned financial institutions dominate the sector and influence lending.

Country's Score Over Time

Bar Graph of Costa Rica  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Costa Rica  to other economic country groups

Regional Ranking

rank country overall change
1Chile78.7-0.3
2Saint Lucia70.70.3
3Colombia70.71.1
4The Bahamas69.8-0.3
5Uruguay 69.3-0.4
6Barbados68.3-1.0
7Peru67.4-0.8
8Saint Vincent and the Grenadines670.3
9Costa Rica 66.9-0.1
10Jamaica 66.7-0.1
11El Salvador 66.2-0.5
12Dominica65.21.3
13Panama 63.40.9
14Trinidad and Tobago62.70.4
15Paraguay 620.9
16Dominican Republic61.31.6
17Guatemala 61.21.2
18Nicaragua 58.41.8
19Honduras 57.1-1.3
20Brazil56.9-0.8
21Belize56.7-0.6
22Guyana55.71.9
23Suriname54.22.2
24Haiti48.90.8
25Bolivia48.40.5
26Ecuador481.1
27Argentina44.6-2.1
28Venezuela 36.30.2
29Cuba28.70.2
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