AGMCULTURE‘S ROLE {N THE EXTERNAL EWCE
AND {NTERNAL GROWTH OF THE COSTA RICAN
ECONOMY

Thesis far the Dem» of M. S.
MCHIGAN STATE UNIVERSITY
Rodalfa E. Quiros
1962

 

 

This is to certify that the

thesis entitled

AGRICULTURE'S ROLE IN THE EXTERNAL BALANCE
AND INTERNAL GROWTH OF THE COSTA RICAN ECONOMY

presented by

Rodolfo E. Quiros

has been accepted towards fulfillment
of the requirements for

m degree in fiififlge—

6AM K €4th

Major professor

Date April 17. 1962

0-169

LIBRARY

Michigan State
University

 

I {in

w ‘r (1 W4 gym}?
My
a W33 2"‘7
MAY f i 20m

{,JAN :31 33812

ABSTRACT

AGRICULTURE'S ROLE IN THE EXTERNAL BALANCE
AND INTERNAL GROWTH OF THE
COSTA RICAN ECONOMY

By Rodolfo E. Quiros

One of the striking changes in development patterns and
policies in underdeveloped nations in postwar years is the
attempt to shift away from export agriculture. In fact,
when emerging nations have invested in agriculture, the
emphasis has been on self—sufficiency, import substitution,
and insulation from world markets. This is a sharp break
with the past. The economic history of the United States,
Japan, Canada, Russia, Argentina, and Brazil, has been
marked by development through world trade.

Latin American development patterns reflect this drive
for import substitution and the expansion of industry. The
ECLA doctrine (also known as the Prebisch—Singer Thesis)
has been instrumental in encouraging an increasing number
of Latin American countries to concentrate their financial
and human resources on import replacing industries at the

eXpense of export agriculture.

Rodolfo E. Quiros

In the late 1950's, Costa Rica enacted three laws which
sheltered industries producing for the local market. In
essence, Costa Rica is moving along the line advocated by
ECLA.

Costa Rica is a small agricultural nation of 1.1 mil-
lion people and has an annual rate of population growth of
3.87 per cent. Bananas and coffee are the main crops and
the main exports.

Since agriculture is the major sector in the terms of
employment and almost the sole earner of foreign exchange
(95%), the purpose of this thesis is to appraise agricul-
ture's role in the external balance and internal growth of
the Costa Rican economy during the 1950—1959 period.

Modern economic statistics for the Costa Rican economy
were not available until 1956 when national income accounts
were first published starting with 1950. Seven methods of
computing growth rates which have been recently examined by
Professor Boris P. Pesek were discussed. Six of these were
used to compute the growth rates of gross national product,
net national product, and net income, and the major sectors
of the Costa Rican economy over the 1950-1959 period. Costa

Rica's gross national product in constant prices grew at a

Rodolfo E. Quiros

rate of 8.00 per cent annually during the 1950-1959 period
while national income and domestic product grew at 7.53 and
7.06 per cent respectively. The agricultural sector of the
gross domestic product grew at 4.55 per cent—-the slowest
annual rate of growth of any sector. The cost of living
index rose from 100.0 in 1952 to 113.4 in 1959 or a rise of
1.42 per cent per year. The food component of the cost of
living index rose from 100.0 in 1952 to 114.9 in 1959 or a
rise of 1.47 per cent per year. These figures indicate
that, unlike other Latin American countries, Costa Rica has
not experienced sharp price increases caused by unsatisfied
demand for food products.

Rising food imports are sometimes viewed with unwar-
ranted alarm. Costa Rica, for example, has a comparative
advantage in producing crops such as coffee and bananas and
importing certain food such as cereals and cereal products.
In order to satisfy the rising incomes and population
growth during the 1950‘s, Costa Rica expanded coffee exports
and increased food imports. All food imports, however, in—
creased by only $7 million over the 1950—1959 period while
coffee exports were $23 million higher at the end of the

period than in the beginning.

Rodolfo E. Quiros

In Costa Rica's dualistic economy, productivity gains
have been centered in the coffee sector and not in crops
produced for the domestic market. Coffee exports increased
138 per cent while coffee acreage increased 49 per cent in
the ten—year period.

Costa Rica has relied on a moderate rise in food
imports and effective stabilization policies of the National
Production Council to stabilize food prices over the ten—
year period.

In general, the 1950-1959 decade was a period of over-
all high rates of growth-~8 per cent per annum—-a 3.66 per
cent rise in real per capita income per annum, political
harmony and a stable general price level including stable

food prices.

AGRICULTURE'S ROLE IN THE EXTERNAL BALANCE
AND INTERNAL GROWTH OF THE

COSTA RICAN ECONOMY

BY

Rodolfo E. Quiros

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE

Department of Agricultural Economics

1962

G.

a. _ .
pa‘fi ‘4’ i/
‘ .. C" : .

r “'2
,' .- -: .a'
1‘ r ctr

AC KN OWLE DG EME NTS

The author wishes to express his sincere appreciation
to Dr. Carl K. Eicher whose guidance, understanding and
patience contributed greatly to the completion of this
thesis.

The author is further indebted to Professor Boris P.
Pesek for his interest and guidance in the statistical
aspects of this thesis, and to Professor Lawrence W. Witt

for his valuable suggestions and review of the manuscript.

ii

TABLE OF CONTENTS

Chapter Page
I. PRIMARY PRODUCING COUNTRIES: PROBLEMS AND

POLICIES . . . . . . . . . . . . . . . . . . l

l

:\A. General Characteristics of Small Nations
‘NB. Instability of International Markets and
Stabilization Policies for Primary

7

Producing Countries
C. Relations Between Industrial and Primary

Producing Countries: The Prebisch-
Singer Thesis for Latin America

v D. The Role of Agriculture in External
Balance and Internal Growth 52
‘E. Summary 63

32

II. SCOPE OF THE THESIS . . . . . . . . . . . . . 67
III. GENERAL CHARACTERISTICS OF COSTA RICA . . . . 73
A. Political Organization of Costa Rica 74
B. Major Institutions in the Public Sector 78
C. International Ties 87
D. Demographic Characteristics of Costa Rica 91
E. Social Characteristics of the Population 97
F. Summary 100

IV. THE CONTEMPORARY PERFORMANCE OF THE COSTA
RICAN ECONOMY . . . . . . . . . . . . . . . 102

A. The Status of the Costa Rican Economy
in 1950: The Stacy May Study 103
B. Economic History of Costa Rica: 1950—1959 104

C. Problems of Measurement of Economic

Growth 110
D. Costa Rican National Income Data 120

E. Some Measures of the Rate of Growth in
Costa Rica: 1950-1959 125
137

F. Summary

iii

Chapter
V. THE PERFORMANCE OF COSTA RICAN AGRICULTURE:
1950-1959 c o o o o o o o o o o o o o o
A. Main Agricultural Regions and Their
Characteristics
E. Land Tenancy in Costa Rica
C. Size and Number of Farms
D. Land Use in Costa Rica
E. Agricultural Production Data
F. Price Stabilization Policies
G. Agricultural Credit System
H. Summary
VI. AGRICULTURE AND INTERNAL GROWTH . . . . .
A. Summary
VII. AGRICULTURE AND EXTERNAL BALANCE . . . . .
A. Summary
VIII. SUMMARY . . . . . . . . . . . . . . .
APPENDIX . . . . . . . . . . . . .
BIBLIOGRAPHY . . . . . . . . . . . .

iv

Page

139

140
143
146
148
154
160
172
176
181
189
194
210
213
230

234

LIST OF TABLES

Table Page

1.1 Year to Year and Long-Term Fluctuations
in Prices, Volume and Proceeds of Selected
. . 11

Primary Commodities, 1901-50 . . .

3.1 Costa Rica: Population and Population
Growth, 1920-1959 . . . . . . . . . . . . . . 91

Economically Active Population

3.2 Costa Rica:
1927 and 1950 . . . . .

by Economic Activity,

94

3.3 Costa Rica: Birth, Mortality and Natural

Growth Rates of Population per 1000
Inhabitants, 1930—1934 and 1952-1956 . . . . . 96

Government Budget Fiscal Year

4.1 Costa Rica:

1959 (Ordinary and Extraordinary) . . . 109

4.2 Costa Rica: Gross National Income, Gross

National Product and Gross Domestic Product

at Factor Costs, 1950-1959 . . . . . . . . . . 122

4.3 Costa Rica: Gross Domestic Product by

Economic Sectors, 1950-1959 . . . . . . . . . 123

4.4 Percentage Contribution of Major Sectors
to the Gross Domestic Product of Costa Rica,

1950-1959

124

4.5 Annual Rates of Growth of the Costa Rican
Economy: Gross National Product and
Income, Gross Domestic Product by Economic
Sectors, Using Six Different Computational

Methods, 1950-1959 . . . . . . . . . . 135

5.1 Costa Rica: Size and Number of Farms 144

5.2 Costa Rica: Land Distribution by Percen-
tage of Farms and Percentage of Total Farm

149

Area . . . . . . . . . . .

Table

Page

Number of Farms and Farm Land,

Costa Rica: .
Percentage Distributions 1950 and 1955 . . . 150
Costa Rica: Farm Land Use, 1950 and 1955 151
Costa Rica: Land Utilization 153
Costa Rica: Principal Crops as Percentage
of Total Value of Agricultural Production,
1950 and 1955 . . . . . . . . . . . 155
Costa Rica: Indexes of Agricultural

. . . . . 157

Production, 1950 and 1955 .

Costa Rica: Indexes of Production of Live—
stock, Livestock Products, Poultry and
Swine, 1950—59 . . . . . . . . . . . . . . . 159

National Production Council: Commodity
Purchases Under the Price Stabilization

Program, 1950—1959 . . . . . . . . . 166
National Production Council: Purchases of
Rice, Beans and Corn as Percentage of Total

167

Production, 1950-1959 . . . . . . .

Rural Credit Boards, Number and Volume of
. . 176

Loans, 1950—1957 . . . . . . . . . . . .

Costa Rica: Percentage Contribution of
Agriculture to Gross Domestic Product,

1950-1959 . . . . . . . . . . . . . 183
Costa Rica: Food Imports, 1952—1959 . . . . . 187
Costa Rica: General Price Level Indexes,

1950-1959 . . . . . . . . . . . . . . . . 190
Costa Rica: Total F.O.B. Exports, 1950—1949 . 196

vi

Table

7.2 United Fruit Company, Exports as Percentage
of Total Costa Rican Exports, 1955, 1959 . .

7.3 Costa Rica:
1950-1959

7.4 Costa Rica:

Exports, 1950,

7.5 Costa Rica:
1950-1959

7.6 Costa Rica:

of Payments,

Appendix
Table

I. Costa Rica:
Production,

II. Costa Rica:
1950-59 .

III. Costa Rica:

Indexes of International Trade,

Geographical Destination of
1959.

Total Imports C.I.F.,

Balance of Trade and Balance

1955,

1950-1959

Volume of Agricultural

1950—59

Volume of Animal Production,

Land Planted to Principal

Crops, 1950-59 . .

vii

O

O

Page

197

202

203

205

208

Page

231

232

233

CHAPTER I

PRIMARY PRODUCING COUNTRIES:
PROBLEMS AND POLICIES
General Characteristics
of Small Nations
A nation is an important and relevant unit for eco-
nomic analysis because it is the basic unit of economic
authority and government action.1 Within the bound—
aries of a nation, a modern government uses its budge-
tary system as an instrument of economic policy; within
the national boundaries, a government with the aid of a
central bank promotes economic development, attempts to
provide a high rate of employment and keep the balance
0f payments under control. Individuals living within
national boundaries are affected and influenced by the
decisions and actions of economic authorities.
The boundaries of a nation, by enclosing a unit of

government and economic policies, represent a pOint of

 

1E. A. G. Robinson (ed.), Economic Consequences of
the Size of Nations (New YOrk: Saint Martin's Press, Inc.,
1960). XIV.

discontinuity. National boundaries not only represent a
change in the degree of mobility of the factors of pro-
duction and goods, but also represent other discontinui-
ties which are inherent to boundaries of nations such as
language, education, skills, and community interest and
outlook.1

These characteristics and discontinuities are common
to all nations in varying degrees. There are, however,
other characteristics which seem to be related to the
size of nations. Professor Kuznets, for instance, has
depicted a number of eConomic traits which are charac-
teristic of small nations.2 To Kuznets, a small nation
is "a sovereign state with a population of ten million

or less."3 Although the correlation between population

 

lIbid., I. Svennilson, "The Nation in Economic
Analysis," 1-13.

2Ibid., Simon Kuznets, "Economic Growth of Small
Nations," 13-32.

3A number of other economists feel that the 10
million population limit is rather low and suggest that
a 15 million population limit is better for economic
Purposes when considering small nations. (Ibig,, dis-
cussion of KuznetS' paper, 348-350.)

and area is not perfect, most of the nations that are small
in population are also small in size.

Thus, the first characteristic of small nations is a
small population. The second characteristic of small na—
tions is that their economy is less diversified than that
of larger nations, even when the two nations have achieved
the same level of economic development. In other words,
the proportional distribution of total output and factors
of production are concentrated in a few industrial2 sec-
tors. This is principally the result of three factors.3
The first is the limiting effect of the size of nations
on the supply of natural, non-reproducible resources. In
general, larger countries have a greater variety of nat-
ural resources (minerals, climates, land, water, etc.)
which are available or could be available at any given
level of technology. The second factor affecting the

relative lack of diversification of small countries is

 

1 .
OE. Clt. I 16.

2 U s o
Industrial in an economic sense.

3Ibid., 16-81.

the minimum economic scale of some industries and the
limited domestic market of small nations.l Some
industries (mainly heavy capital producing industries)
require a minimum scale of plant which would be very un-
economical for the extent of the market of the economic
system of a small nation unless it can rely on a sub—
stantial foreign market. The third and last reason is,
in a sense, complementary of the two named above. On one
hand, although small nations may lack many natural re-
sources, the supply of a few may provide a comparative
advantage to concentrate in their exploitation. Larger
countries may have a wider variety of natural resources
and a larger absolute supply but a less favorable endow-
ment on a per capita basis. On the other hand, although
small nations may not afford large-scale industries,

they may have a comparative advantage with respect to
some production processes. In other words, the existence
Of these nuclei of comparative advantage may lead to a

concentration of economic activity in small nations.

1This limitation of the market in small nations, is
further accentuated in small underdeveloped nations by
low levels of income.

Professor Kuznetsgeneralizes from empirical data on the
concentration of exports and suggests that foreign
trade plays a larger role in smaller nations than in
larger nations. This generalization forms the second
general characteristic of small nations. Patinkin, how—
ever, rejects this generalization by referring to a
recent study of M. Michaely.l Patinkin concludes that
. . . if one took all the large countries togeth-
er and all the small countries together, there was
not much difference between the concentration of ex-
ports in large and in small countries. The classi-
fication meant that one was taking underdeveloped
and developed countries together in each group, and
their characteristics canceled out.
In summary, Patinkin points out that the concentration of
exports in large or small nations ". . . was only eco—
nomically significant if one also distinguishes devel-
. ..3 -
oped from underdeveloped nations. According to the

same author, smaller developed nations have a higher

index of dependence on foreign trade than larger

 

lM. Michaely, study carried out at the Hebrew

University.

292. cit., Don Patinkin, "Discussion: Economic
Growth of Small Nations," 352.

3
Ibid., 353.

developed nations. However, there was no significant
difference in the index of concentration of foreign trade
in small and large underdeveloped nations.l Therefore,
qualifying Professor Kuznets' statement, it could be

said that foreign trade has important weight both in the
economic activity of small developed nations and large
and small underdeveloped nations.

To summarize, the general characteristics of small
nations are: a) concentration of production in a small
number of economic activities, and b) high concentration
of production for international trade.

These two characteristics have economic implica-
tions for small countries. In the first place, the
limited size of their domestic market compels small na-
tions to sell a larger share of their production abroad,
therefore making their economies vulnerable to economic
fluctuations originating abroad. Secondly, given the

limited size of the domestic market small nations may not

 

lIbid.

2Empirical data show that both exports and imports of
underdeveloped nations are exchanged for goods in a small
number of other nations. This pattern is in market con-
trast to the dispersion of international trade of larger
developed countries. Ibid., Simon Kuznets, 21.

take full advantage of the economies of scale of mass
production. Thirdly, by virtue of the geographical size
and economic and political power, small nations cannot
exercise as much effect on international markets as com-
pared to larger nations.

This greater dependence on international trade on
the part of underdeveloped nations (whether large or small
as pointed out earlier), poses two additional problems
which have important implications for their economic devel—
opment efforts and policies: a) the extent of deteriora-
ting terms of trade for underdeveloped countries and b)
instability of international markets and export proceeds
of underdeveloped countries. These two problems will be
explored individually in the remaining parts of this
chapter.

Instability of International Markets
and Stabilization Policies for
Primary Producing Countries

The purpose of this section is to review the nature,
extent and causes of the instability of export prices and
proceeds of primary prdducing nations and the common policy

prescriptions to reduce price and income instability.

The Nature of the Iggtability

Instability of export markets for primary commodities
is of extreme importance to underdeveloped nations for
they are usually the main source of foreign exchange.
The relative importance of exports to underdeveloped na-
tions is brought out by the fact that exports of these
nations to the industrial world accounted for twenty—
five per cent of the total trade of the world; in addi-
tion, their exports to the industrial world are two and
a half times as large as their exports to each other.1
This asymmetry in the trade relations between industrial
and underdeveloped nations as compared to the intra—
trade among the latter is of great importance since a
fluctuation that can be a mere ripple to industrial na-
tions, may have the effect of a disastrous fluctuation in

underdeveloped nations.

lRagnar Nurkse, "Trade Fluctuations and Buffer Pol-
icies of Low Income Countries," Kyklos, Vol. XI, 1958,
Fasc. 2, 142.

The Extent of Instability of Primary Producers

Two United Nations studies, published in 1951 and
19521 respectively, explore the relationship between ex-
port quantities and export proceeds for a number of se—
lected commodities produced by underdeveloped nations.
The data presented here provide ample indication of:
first, the wide price fluctuations which afflict export
prices of the main commodities produced by underdeveloped
countries; second, the great variations in export quanti-
ties both in terms of world market and export quantities
to particular markets; and third, the tendency of price
and quantity fluctuations to interact so as to reinforce
each other rather than compensating each other's fluc-
tuations. The result of this process is violent varia—
tions in export proceeds which then represent an unreli—
able source of foreign exchange to pay for a steady in-
flow of capital goods and other goods required for eco—
nomic development. The 1951 study explores year to year
variations in prices, quantities and proceeds for thir-

teen selected commodities for the period 1901 to 1950.

L

United Nations, WOrld Economic Situation: Economic
Egyelopment of Underdeveloped Countries, 1931:United Nations

Instability in Export Markets of Underdeveloped Countries,
1952.

l

10

The results of this study show that these thirteen com—
modities underwent an average fluctuation per year of
eighteen per cent with respect to prices, twenty-five
per cent with respect to volume and thirty~five per
cent with respect to export proceeds.1 The results of
the 1952 study which analyses the same three variables
for cyclical, long—term and year to year variations, can

be more efficiently summarized in tabular form.

25 commodities considered.

11

TABLE 1.1

YEAR TO YEAR, CYCLICAL AND LONG—TERM FLUCTUATIONS IN PRICES,
VOLUME AND PROCEEDS OF SELECTED PRIMARY COMMODITIES,19OL-50

PER CENT AVERAGE ANNUAL FLUCTUATION

 

 

 

 

Year to Cyclical Long—term
Year Within
Up— Down- Phase: Year
swing swing Rising Falling
Pricesa 13.7 12.8 -l3.0 4.7 -4.3 26.7
Volumeb 18.7 17.6 —l6.8 4.0 -4.1
Proceedsb 22.6 22.0 -22.l 5.8 —6.1
Source: United Nations, Instability in Export Markets

of Underdeveloped Countries,

4-6.

 

New York, 1952, Tables 1—3,

a , , .
25 commodities conSidered.

18 commodities considered.

Year to year fluctuations in volume were frequently twice

as high as fluctuations in price and thus resulted in

greater instability of proceeds. even when the fluctua-

tions were in the opposite direction.

Price and volume

fluctuations tended to be in the same direction in the

12

case of industrial raw materials while fluctuation in
volume and in prices tended to move in opposite direc-
tions in the case of food commodities. A further conclu-
sion from the two reports is that no relief from these
extreme variations is afforded underdeveloped countries
through corresponding variations in the prices of their
imports; on the contrary, when proceeds are computed in
terms of buying power over imported manufactured goods,
yearly variations are, if anything, intensified rather
than moderated. It can be noted that the 13 commodi-
ties in the 1951 report experienced more violent price
fluctuations than the 25 commodities in the 1952 report.
It is observed from the preceding table that fluctua-
tions in export proceeds, whether measured year to year,
cyclical or long-term, were in each case higher than
fluctuations in volume or prices alone. The study also
points out that this was true even when fluctuations in
proceeds were measured and compared in different periods
within the time period considered. Furthermore, the
reports show that if specific commodities from specific
exPorting countries in the U. S. market alone are con-

sidered, the average yearly variation in export proceeds

13

is even greater; namely forty—nine per cent according to
the 1951 report and thirty-seven per cent according to
the 1952 report (seventeen per cent with respect to
prices). The above mentioned observations indicate that
changes in prices and in quantities had destabilizing
effects on each other. Analysis of the years for fall—
ing proceeds in which declines averaged twenty-five per
cent, show that two—fifths of the decrease was accounted
for by a decline in price; the rest by a decline in
volume.

substantial differences were found in both reports
with respect to the relative importance of fluctuations
in price and in volume, so far as a particular group of
commodities or selected countries were concerned. In
general, however, neither price stabilization alone (at
the existing level of instability in export volume), nor
volume stabilization alone (at the existing level of
price instability), was sufficiently great to result in
any substantial stability of proceeds. Commodities
which were found particularly liable to year to year
fluctuations in price were also liable to wide year to

year fluctuations in volume and proceeds, and vice versa.

l4

gaggggpof Instability

There is a general consensus of opinion among
economists that demand conditions play a dominant role in
the instability of export markets for primary products,
and that export fluctuations of primary producers origi-
nate in the cyclical swings of investment in fixed capi-
tal. Professor Nurkse,for instance, states that the ef-
fects of the industrial investment cycle on the demand
for primary products is magnified by inventory changes
arising from speculative activities or simply by the nor—
mal desire to keep stocks adjusted to the volume of trade
and production;1 hence the cyclical variability of demand
for primary products. Other factors in the demand side
that may have an important bearing on the prices of pri-
mary commodities are the major irreversible shifts of
demand caused by technological advances such as the
electrolytic tinning in the 1940's.

Let us turn to the supply side. Price induced changes
in output may be caused, in the first instance, by changes

in the supply, demand schedules remaining unchanged. The

 

10p. cit., p. 142.

15

extent to which total supply responds to price changes

depends on many factors and varies greatly from com-

modity to commodity. Most economists seem to agree that

the short-run supply elasticity of most primary com—

. I O l
modities is low and even zero for some, e.g., most food

crops and minerals produced with capital intensive meth—

ods. For some other commodities price elasticity of sup-

ply is considerably greater than zero, even in the short-

run, e.g., palm products and rubber. It is generally

agreed that long-run elasticity is greater than the

short—run one, but this division of the two elasticities

is not as important as the time period required to change

fixed—factor inputs. This depends in part on the organi-

zation and the physical characteristics of production;

for instance, the production of tree crops, obviously will

expand more slowly than the production of field crops.

Two additional factors also enter in the determination of

the long-run supply elasticity; these are, first, the

1However, inelasticity of supply seems to be more
pronounced in the event of falling prices than at times of
rising prices. Henry wallich, "Stabilization of Export
Proceeds," Economic Development for Latin America, HOward
S. Ellis (ed.)(New YOrk: Saint Martin's Press, 1961),

346-347.

l6

psychological responsiveness of producers to price changes,

in particular--peasant producers, and second, the physi-

cal possibility and the economic attractiveness of pro—

ducing alternative crops.

From the preceding comments two conclusions can be

drawn. One is that the reduction of price fluctuations

would reduce or mitigate the fluctuation in output of pri-

mary commodities. The second conclusion is that supply

conditions differ so much from commodity to commodity that

price stabilization schemes must also vary according to

the commodity in question.

Some Common Solutions to the Problem

Based on previously stated observations, it could be

said that industrial countries have tended to impede prog-

ress in primary producing countries through the instabil-

ity of the trade cycle.l There are, however, three solu-

tions to this problem. The first solution is to exercise

greater control over the business cycle in industrial
nations through appropriate monetary and fiscal policies.

Although some progress has been made in this direction,

 

lOp. cit., Nurkse, 143.

17

it is unlikely that upswings and setbacks strong enough to

cause serious trouble in international markets can be

avoided altogether. The second solution is to make struc-

tural changes in primary producing economies which will

make them less vulnerable to instabilities in inter-

in one word, industrializa-

national commodity markets;

tion. HOwever, industrialization, though possible, is a

long—term process and does not effect an immediate solu—

tion to a short—run problem. The third solution is to

establish international and national agencies which,

through the use of stabilizing measures, try to counter-

act wide fluctuations in export prices and proceeds.

The Rationale of Price Stabilization
As pointed out earlier on page 16, more stable
prices will tend to curtail the expansion of’ output at

times when prices have fallen from a level at which expan—

sion appeared profitable. But this does not mean that

given more stable prices, output of primary commodities

will not expand. Output is not determined by market price

alone, but determined by the market price in relation to

cost of production (including opportunity cost). Output

18

may expand, and expand even too much despite stable prices

if the costs of production decline through the use of im-

proved production techniques. Conversely, output may de-

cline despite stable prices if production costs (including

opportunity costs) increase. But the extra inducement of

temporary high or low prices (or the extra deterrent of
temporary low prices) would not add to or subtract from
output induced by changes in the price-cost relationship.
Thus, price stabilization would contribute a more stable

volume of output and fewer and smaller deviations of mar—

ket prices from long-term price trends. Nevertheless,

the risk and uncertainty of price instability represents
in itself a cost which is partially born by consumers
(industrial countries) but mostly borne by producers.

The stabilization of export prices would therefore, bring
a reduction in costs of production (proportional to the

risk premium borne by producers) and at any given price,

output will ultimately be expanded due to the more

—__

Trade Fluctuations

lIbid., J. D. Adler, "Government:
' 159.

and Buffer Policies in Low Income Countries,’

19

favorable price-cost relationship. Lower production costs

are to the advantage of primary producers because it means

an increase in real income, but given demand elasticities

of less than one for primary commodities, the export earn—

ings will be smaller. This conclusion seems to defeat the

case for international stabilization schemes since more

stable prices mean lower costs to producers, lower prices

and reduced export earning. The answer to this apparent

paradox can be divided in two parts. First, this would

be the case if on the one hand, the resources set free as

a result of cost saving (due to stable prices) become
technologically unemployed or if there is no possibility
of replacing the loss of foreign exchange earnings by

domestic production or increased production of other com-

modities. Resources released from the export sector are

usually more efficient than other factors in the economy

and therefore could be easily transferred. On the other

hand, if the cost reduction is gradual, the transfer is

likely to be small or even unnecessary if the gradual up—

ward movement of the demand schedules, together with the

1Ibid., 160-61.

20

increase in quantities demanded (on account of lower

prices), bring about an increase in the volume of com—

modity demanded at the market. Second, most proposals

for international schemes have been limited to short—run

effects in which the impact on cost is minor, and the

main objective has been the protection of producers

against permanent losses of foreign exchange. It can be

concluded then, that price stabilization is advantageous

to primary producers even if it means a decline in

export earning in the long run.
Stabilization schemes also have some benefits to

industrial countries. More stable prices bring about

cost savings which partially accrue to the industrial

countries as consumers and also provide a more stable

supply of primary commodities. Furthermore, violent

changes in the price of raw materials and foodstuffs make

it difficult for industrial countries to maintain inter-

nal stability. However, industrial countries may still

lose in the aggregate sense through price stabilization.

21

Stabilization Schemes

Given the advantage of long—term price stability, the

question of the most suitable stabilization scheme arises.
Since the supply conditions (including organization of pro-

duction) are so different for each primary commodity (p.

16), there is no ideal scheme. However, irrespective of

details, whatever scheme may be advocated, it should

interfere as little as possible with the dynamic changes

in the supply conditions. This will eliminate from con-

sideration the allocation of maximum production or export
quotas to exporting countries or individual producers,
since fixed quotas would prevent those shifts in output

which would result from falling (or rising) production

costs. However, since quantity fluctuations and price

fluctuations are not independent from one another, most

practical forms of price stabilization imply some con-

trols of quantities.

__¥

1The United Nations report mentioned previously states
that if price fluctuations could be eliminated altogether,
only 17 per cent of export proceeds fluctuations will be
eliminated. Similarly, elimination of quantity fluctua-
tions will only eliminate 39 per cent of instability of

proceeds. (U. N., op. cit., 57). Wallich has commented
however, that past fluctuation in export proceeds of a few

22

Some of the stabilization schemes suggested in the

literature are the following:

International Measures

 

The export markets of primary products could be
stabilized by means of, first, long-term agreements on
prices and/or quantities, either bilateral or multi-
lateral, and second, buffer stocks schemes.

A fundamental principle of all these schemes should
be that they do not attempt to make average prices over a
period of years higher or lower than they would otherwise
have been. Their objectives should be merely to reduce
fluctuations around the long—term trend.

Long—term agreements on prices and quantities may be
bilateral or multilateral. Bilateral agreements may be
convenient or even desirable when one country takes a
high proportion of the world exports of a commodity and
where exporting countries do not feel the need for con—
certed negotiation with the importing country to avoid

exploitation. Since contracts will be made with suppliers

major commodities are analyzed on the basis of quantities
absorbed and not quantities traded. Price fluctuations
have accounted for well over 50 per cent of total insta-
bilities (wallich, op. cit., 345).

23

at different times, it is probable that, at any one time,
different prices will be paid to each but as long as one
supplier is not consistently favored over another, the
agreement need not be considered discriminatory. Multi—
lateral long—term agreements, such as the International
Wheat Agreement, could also be feasible for a large num—
ber of commodities. The margin between minimum and maxi—
mum prices, and the provisions for changes from year to
year, can insure a measure of stability for both export~
ing and importing countries while avoiding undue rigidity.
The International Coffee Agreement is another instance
of multilateral agreements based on quantity. Under this
agreement, member countries agree to withhold from the
market a certain percentage of their annual production.
Individual producers can still expand production if it is
to their advantage to do so, as long as the percentage
quota is maintained. The "Buffer Stock" schemes provide
for the selling or buying commodities as soon as the
world market price falls to a predetermined level or
rises to a certain maximum level. Between these official
buying and selling points, prices would be allowed to

fluctuate. Both the support and the ceiling prices would

24

be adjusted from time to time in the light of experience,
to take account on long-term changes in demand and supply
conditions. Difficulties are bound to rise on account of
the natural interest of producers to set buying and sell-
ing prices at too high a level. However, the main prac-
tical objection is that of finance. The costs of storage
are manageable but substantial; nevertheless, the more
serious problem is that of providing capital finance re—
quired given the volume of trade and surpluses at any
given time of most commodities. Furthermore, the buffer
stock idea can only be started in periods of recession,
not in boom periods.

Buffer stock schemes can do a great deal to reduce
not only price fluctuations but also fluctuations in for—
eign exchange receipts due to swings of demand in import-
ing countries. On the other hand, it would not stabil—
ize either producer's incomes or exporting countries
foreign exchange against fluctuations in the supply of
the commodity. Furthermore, since it is never possible

to distinguish between a temporary fluctuation and a

25

major change of trend, the setting-up of a buffer stock
is necessarily a speculation that may fail.1

Both of the international stabilization measures men—
tioned here have the disadvantage that if they are ap—
plied only to a few exportable products, they would cre—
ate privileges for some countries. They would also cre—
ate, within any one country, privileges for certain pro—
ducers. Thus they would be liable to attract, especially
in times of depression, the available entrepreneurs,
labor and capital, to the protected branches. Even if
the measures were applied to all exportable commodities,
there is a risk of the price stability to discourage ex—
pansion of the cultivation of food crops for internal

markets.2

National Measures
National stabilization schemes are in most cases
preferable to international arrangements, not only be—

cause of the administrative and political difficulties

 

l .
Op. cit., P. T. Bauer, F. W. Parish, "Comment:
Trade Fluctuations and Buffer Policies in Low Income
Countries," 169.

Ibid., Maurice Bye, "Comment: Trade Fluctuations
and Buffer Policies in Low Income Countries," 180.

26

unavoidable in the latter, but also because of the static
character of such arrangements as the allocation of

quotas, which are determined based on the bargaining pow—
er of the individual country and past performance rather
than on dynamic economic considerations. There are, how—
ever, instances where some form of international arrange—
ment is preferable, or even essential if stabilization is
to be successful; and there are advantages to internation—
al arrangements which cannot be obtained through national
stabilization schemes.

Buffer funds as well as buffer stocks national or
international are alternative methods of stabilization
available to primary producing countries. They are how-
ever, substitutes for each other. The existence of buf-
fer stocks would make foreign exchange reserves less
necessary and vice versa. Buffer stock's main problem
is again that of financing; nevertheless, it has to be
remembered that buffer funds have to be "financed"
through abstinence in boom periods. This could be a
real burden in View of the pressing needs for imports of
equipment as well as consumer goods. It will be assumed

that primary producing countries are willing to carry

27

the burden in operating a buffer fund of foreign exchange,
rather than operating a buffer stock.

The purpose of the following alternatives using buf-
fer funds is not to reduce variations in the world market
prices, but to reduce their impact on the domestic econ-
omy by stabilizing the disposable income realized by pri-
mary producers. This can be done in three ways: 1) The
establishment of a central marketing agency which guar—
antees a certain price to domestic producers and sells
the products in the export markets for whatever price
they may fetch. The domestic price paid to producers can
be determined in such a way that it amounts to a tax in
good years and a subsidy in bad years, 2) A scheme of
essentially the same kind which would operate expressly
in the form of variable export taxes and subsidies,

3) The establishment of an exchange control agency which
takes over the foreign exchange proceeds of exporters at
lower or higher rates of exchange. If its selling rates
of foreign exchange remain constant, the agency can
Operate to make a profit in periods of high export prices

and a loss at other times.

28

All the three alternative methods have in common that

they do not interfere with the prices paid by importers

or consumers. In contrast to buffer stocks of commodi—

ties, buffer funds obtained through the schemes mentioned

can be best started when the world demand is booming.

The argument in favor of stabilization through mar—

keting boards is that they are an effective device for
serving the interest of producers and that it is much
easier in periods of low prices to subsidize producers
from the general funds accumulated by the marketing

board than to subsidize them from the general tax reven-

ues or reserves of the government. HOwever, this sys-

tem may be a less satisfactory device than the other

two proposed (variable export taxes alone or variable

export taxes and fixed prices paid to producers). This

is particularly so in the case of countries where there

is a great deal of economic interaction between the

export sector and the rest of the economy, and where the

level of imports (for the entire economy) and the rate

of capital formation depend very much on the performance

of the producers of export commodities. In this case,

the general welfare of the country (guided by the

29

government) and the welfare of producers (guided by the
marketing board) is practically undistinguishable.
Differential exchange rates and export tax poli-

cies are two different methods of achieving the same

end. In other words, differential exchange rate

arrangements can be used instead of export taxes.
The system of taxing primary producers when their
products command a high price abroad and to subsidize

them when product prices are low is subject to objec—

tions. The effects of this scheme will depend on the

elasticity and production conditions of the supply of

the commodity considered. If the supply of the commod-

ity is quite elastic, then by stabilizing prices re-

ceived by producers, this policy interferes with the

incentive to produce more when prices are high, and

serves to keep production up when export prices are

low. It is for this reason that is is suggested that

prices are allowed to follow world market prices and

that general taxation (through excise revenues, income

taxes, and import and export duties) be increased in

export booms and reduced in export slumps. In this way

a budget surplus could be achieved in export boom periods

30

so as to accumulate the essential buffer fund available

for expenditure in depression years, without interfer—

ing with incentives to shift resources into or away from

export production in response to price changes. However,

the possibility of conducting this general counter-cy-
clical fiscal policy in underdeveloped countries may be

extremely limited. It may very well be that the sim-

plest counter-cyclical policy for underdeveloped coun-
tries is the direct manipulation of export prices for

primary commodities. Although national stabilization

schemes will mitigate the effects of price-induced

changes in the income of producers, the undesirable ef-

fects of the different policies (which among other

things, depend on supply conditions of the particular

commodities) have to be realized.

The Economic Role of Price Fluctuations

 

So much has been said about the detrimental effects
of price instabilities on export proceeds that one inad-

vertently may acquire the impression that price fluctu—

ations are not bad per gg, They constitute the essential

31

mechanism for the allocation of resources.1 Price
movements are the warning signal to increase or reduce
output of a commodity. Doubts concerning this function of
price fluctuations arise from the limited reliability of
price signals in the short—run.

In the first place, there is the possibility of unre—
liable price signals due to short-run speculative as well
as cyclical nature of many price movements.2 Secondly,
short-run price movements are often misleading; producers
may be hesitant to react too rapidly or too intensively to
price increases which may later prove to be of a more
permanent nature. Conversely, failure of producers to
contract production in the event of price declines thought
to be of a short-run nature (when they are cyclical), to-
gether with a lower inelasticity of supply in periods of
falling prices, may lead to surpluses (which in turn have
further depressing effects on prices). Finally there is

the possibility of the cobweb situation: high prices

102. cit., Wallich, 346.

2Ibid., 246-247.

32

cause overproduction which depresses prices and output;
lower prices and reduced output will lead to high prices
and renewed overproduction, and so on.

To summarize: High price instability is a fact.
While recognizing the essential dynamic function of
price changes in the allocation of resources, there
seems to be a well—supported case to try to counteract
violent price fluctuations of primary commodities.
Policies designed to counteract price fluctuations are
beneficial to both producers and consumers as long as
the stabilized prices do not interfere with needed
long—run price and output shifts.

Relations Between Industrial and
Primary Producing Countries:
The Prebisch-Singer Thesis
for Latin America
In 1950, Professor Raul Prebisch hypothesized that

economic development in Latin American was being inhibi-

ted on account of deteriorating terms of trade.2 He

lIbid.

United Nations, Economic Commission for Latin
America, The Economic Development of Latin American and
Its Principal Problems (New YOrk, 1950).

33

used United Nations' figures of Britain's terms of
trade between 1876 and 1946 to support his hypothesis.

The Prebisch thesis states that the economic advan—
tage of the division of labor is theoretically sound but
is based on unsound assumptions. According to this
assumption, the benefits of technical progress tend to
be distributed alike to the whole community, either by
lowering of prices or by corresponding rise in income.
Countries producing raw materials (peripheral countries)
obtain their shares of these benefits through inter-
national exchange, and therefore have no need to indus—
trialize. If they were to do so, their lesser effi-
ciency would result in losing the advantages of such
exchange. In practice, however, Prebisch believes that
the advantages of technical progress have been concen-
trated in the industrial countries of the world (the
center) and have not been extended to the countries
making up the periphery of the world economic system
(primary producers).

If prices had behaved according to the classical

theory, prices of industrial products would have fallen

1Ibid., 8.

34

relative to primary prices, in response to advances in
technology and productivity. If this had happened,

" . . . the countries of the periphery would have benee
fited from the fall in price of finished products to
the same extent as the countries of the center and the
benefits of technical progress would have been distri—
buted alike throughout the world.”1 However, the
reverse has been true. In the 1930's, an average of
58.6 per cent more primary products were needed to buy
the same amount of finished industrial products as in
the 1960's.2 This led Prebisch to believe that the
terms of trade of peripheral countries are deteriora-
ting. Prebisch believes that the improvement in terms
of trade during 1946-47 in favor of primary producers
was the result of war and post war boom in supplies
but the general unfavorable trend will eventually be
resumed. The trend in deteriorating terms of trade

seems to have been resumed during the 1950's.

 

1Ibid., 8.

2Ibid., 8-9.

35

Prebisch explains the deteriorating terms of trade
with the following arguments. On the demand side, the
explanation is based on the disparity of income elas-
ticity of demand for imports at the center and at the
periphery.1 On one hand, the low income elasticity of
demand for imports at the center,2 combined with higher
rates of output at the periphery which are due to
increased productivity, exerted a depressing effect on

prices of exports produced at the periphery. On the

 

lRaul Prebisch, "Commercial Policies in Under-
developed Countries," American Economic Reviewy Papers
and Proceedings (May, 1959), 251—54. Prebisch states
that for every one per cent rise in per capita income
in the U. S. imports of primary goods tend to increase
0.6 per cent. Robert Lekachman, National Policy for
Economic welfare at Home and Abroad, comments by
Professor Prebisch, 277-80.

 

2The low income inelasticity, as well as the low
price inelasticity of the imports at the center, are
due to the nature of exports from the periphery which
are food and raw materials. The lag in the growth of
demand for these commodities is either due to the effect
of Engle's Law and protective measures on the part of
center countries with respect to agricultural commod-
ities, or to technological innovations which reduce the
proportion of raw materials per unit of output or syn-
thetic substitutes. werner Baer, "The Economics of
Prebisch and ECLA," Economic Development and Cultural
Change, Vol. XI, No. 2 (January, 1962), 170.

36

other hand, the high income elasticity of demand for
imports at the periphery1 tends either to keep the
price of imports constant if there is a proportional
increase in productivity at the center, or to increase
the price of the periphery's imports if such propor—
tional increase in productivity does not occur or if
market imperfections at the center restrict the supply.
On the supply side, the reason suggested for the
deterioration of the terms of trade against peripheral
countries is that money incomes (and hence prices) have
risen more rapidly than productivity in the Center,
while in peripheral countries, increases in produc-
tivity have been distributed in the form of price re-
ductions or only in proportional increases in money

income.2 This difference in the behavior of prices in

 

1The reason for the high income elasticity of
demand for imports from the center is that these im-
ports consist mostly of capital equipment and machinery
needed for development and manufactured goods with high

demonstration appeal.

2 . .
See also the Singer verSion, p. 40.

37

center and peripheral countries is attributed to the
difference of primary product prices and industrial
prices over successive business cycles, and to the
monopolistic industrial market structure.

During the upswing of business cycles, prices of
primary products rise more rapidly than industrial
prices, but subsequently lose this gain during down-
swings. Conversely, although industrial prices rise
less rapidly during upswings, they do not fall so far in
a downswing as they have risen in prosperity. The rea-
son for this is; one, the rigidity of industrial wages
caused by the organization of labor.1 and two, price
inflexibility in a more monopolistic industrial market.2
Therefore, Prebisch asserts that the gap between indus-
trial and primary product prices have progressively

widened,3 and peripheral countries have suffered an

 

1In contrast with a monopolistic organization of
labor in the center, Prebisch assumes unlimited sup-
plies of labor in peripheral countries. Prebisch,
op. cit., "Commercial Policies in Underdeveloped Coun-
tries," 255.

2United Nations, op. cit., 12—14.

3Ibid., 10.

38

unfavorable movement in their terms of trade. Thus,

" . . . while the centers kept the whole benefit of

the technical development of their industries, the pe—
ripheral countries transferred to them a share of the
fruits of their own technical progress."1 As long as
these phenomena occur, it follows that productivity of
industrial centers exerts a retarding effect on the
development of peripheral countries.2 Unless some kind
of counteraction is taken, the long—run prognosis is
for continued deterioration of the relative trade posi-
tion of peripheral areas. Consequently, policies
should be enforced to prevent transfers of income (in
the form of lower prices) to center countries and to
protect the periphery's capacity to import. According
to Prebisch, to achieve this purpose, government inter-
ference with the import and export trade, in the form

of protection, subsidies, export taxes or any other form

 

1Ibid.

2In fact, Prebisch states: "The high productivity
of the great industrial countries is one of the greatest
obstacles which the peripheral countries must overcome
in order to achieve a similar degree of productivity.”
United Nations, Economic Survey of Latin America, 1949
(New Ybrk: 1951), 173.

39

of interference is required. The best way to counter-
act the 1ong-run tendencies of deteriorating terms of
trade is through a policy of selective protection of
import substituting industries.1 The criterion of the
feasibility of import substituting industries is not
relative efficiencies of industrial production in the
usual sense, but the establishment or expansion of local
industries which contribute (or would contribute) most
to national income. In other words, protection is eco-
nomically justified when the possible loss caused by the
fall in export prices (due to expansion and increased
productivity of traditional exports) is greater than
the higher cost of internal production in relation to
imports. In Prebisch's words,
It is not really a question of comparing industrial
costs with import prices but of comparing the incre-
ment of income obtained in the expansion of industry
with that which could be obtained in export activi—

ties had the same productive resources been employed
there.2

 

Raul Prebisch, op. cit., “Commercial Policies . . ."
255.

2Ibid., 255.

40

Although Prebisch warns that protectionistic policies
are beneficial as long as they are not exaggerated to
shelter inefficiency,1 the application of such poli-
cies by some Latin American countries has resulted in
the creation of inefficient industries and economic

unbalances, as will be pointed out later.

The Singer Version

writing about the same time, Hans Singer presented
a very similar argument to that of Prebisch.2 Singer
begins his argument by exploring the role of foreign
investment in underdeveloped countries which has been
mainly concentrated in primary production. He con-
cludes that foreign investment by industrial countries
has detrimental effects on primary producers for two
reasons: first, because secondary multiplier and back—
wash effects of foreign investment have returned to

the investing countries, and second, because foreign

 

1Ibid., 257.

Hans Singer, "The Distribution of Gains Between
Investing and Borrowing Countries," American Economic
Review, Papers and Proceedings (May, 1950), 477-85.

41

investments have diverted underdeveloped countries
into primary production (which offers less scope for
technical progress, internal and external economies),
and withheld productive efforts from the "central
factor of dynamic radiation," industrialization.l
Singer states that the most important factor which has
reduced the benefits of foreign trade—cum—investment
to underdeveloped countries, has been the deteriora-
tion of the terms of trade. He dismisses the possi-
bility that the deterioration of the terms of trade
reflects the relative changes in real cost of manu-
factured exports of industrial countries relative to
those of food and raw materials of primary producers,
since productivity has increased more rapidly in the
former than in the latter. Moreover,
The possibility that changing price relations
could merely reflect relative trends in produc-
tivity may be considered as disposed of by the
very fact that the standards of living in indus-
trialized countries (largely governed by produc-
tivity in manufacturing industries) have risen
demonstrably faster than standards of living in
underdeveloped countries (generally governed by

productivity in agriculture and primary produc-
tion) over the last sixty or seventy years.

 

1Ibid., 477.
2Ibid., 478.

42

Having dismissed changes in productivity as a govern-
ing factor in explaining the deterioration of the terms
of trade, Singer turns to another explanation. Singer
believes that in industrial countries the benefits of
technical progress have been distributed to producers
primarily through higher incomes rather than to con—
sumers in the form of lower prices. However, in under—
developed nations, Singer feels that producers have suf-
fered and consumers have gained lower prices as a re-
sult of technical prOgress.

Since both Prebisch and Singer agreed on the deteri-
oration of the terms of trade against primary producers,
their thesis has come to be known as the Prebisch-Singer

thesis.

Criticism of the Prebisch—Singer Thesis

Criticism of the Prebisch—Singer thesis has been
rather extensive. One criticism is based on the statis—
tical inadequacy of Britain's terms of trade since the
1870's-—the empirical evidence used by Prebisch and

Singer for their arguments. On one hand, the commodity

43

terms of trade are thought to be an inadequate measure
because:

It is clearly possible that a country's income

terms of trade and single-factoral terms of trade

may improve at the same time as its commodity

terms deteriorate.

Also, trade statistics give no weight to the gain in
utility from new commodities which have become available
during the period considered.2 Moreover, even "where
the manufacturers are nominally the same, they are over
the years incomparably superior in quality, . . .
whereas primary commodities used in price indexes . . .
are for the most part . . . not superior in quality and
in some cases inferior."3 On the other hand, long-run

period terms of trade are misleading since the British

terms of trade were based on C.I.F. import prices and

 

1Gerald M. Meier, "Export Stimulation, Import Sub-
stitution and Latin American Development," Social and
Economic Studies, Vol. X, No. 1 (March, 1961), 53.

 

2Jacob Viner, International Trade and Economic
Development (Glencoe, Illinois: 1952), 143. See also
Gottfried Haberler, "International Trade and Economic
Development," in National Bank of Egypt, Fiftieth
Anniversapy Commemoration Lectures (Cairo, 1959), 19.

3Ibid.

 

44

F.0.B. export prices. This means that the import
prices included transport costs while export prices

did not.1

One of the most vehement critics of this thesis,
Professor Haberler questions both the empirical evi-
dence and the assumption of the deterioration of
terms of trade for primary producers. He states that:

This alleged historical trend is supposed to be the
consequence of deep-seated factors and hence capable
of confident extrapolation into the future. To my
mind the alleged historical facts lack proof, their
explanation is faulty, the extrapolation reckless
and the policy conclusions irresponsible to put it

mildly.2
Haberler denies the validity of Prebisch's assertion
that prices of industrial products are kept high by
monopolistic behavior of labor unions and cartels.

It is true that industrial progress in the devel—

oped countries rarely takes the form of constant

money wages and money incomes associated with
falling prices, but rather the form of constant

 

1

Primary Producing and Industrial Countries,
American Economic Affairs, Vol. X, No. 1 (Summer,
1956), 55-57.

P. J. Ellsworth, "The Terms of Trade Between
” Inter—

2Gottfried Haberler, "Critical Observations on
Some Current thions in the Theory of Economic Devel-
Opment," L'industria (No. 2, 1957), 8.

45

(or even rising) prices associated with rising

money wages. . . . but there is no evidence

that it has changed relative prices as between

industry and agriculture or between finished

goods and raw materials.1

NOr will Haberler accept the "heavy burden” that
this theory places on Engle's Law in explaining the slow
growth of demand for food and primary products in indus-
trial countries. Although this Law applies to food in
general, it does not apply to every kind of food, and
it is not clear that rising incomes lead in every case
to a proportional decline in the demand for raw mate—
rials. Finally Haberler believestflwm even if evidence
clearly shows that the terms of trade have deteriorated
in the last century, policy conclusions cannot be de-
rived from these facts unless it is certain that the
deterioration is likely to continue.2

Recent studies have given additional support to the

Prebisch—Singer thesis.3 A recent study, based on

 

 

lIbid., 9.
21bid., 8-9.
3

M. K. Atallah, "The Long-term Movement of the Terms
of Trade Between Agricultural and Industrial Countries,"
(Rotterdam, 1958), summarized in Benjamin Higgins, Economic
Development (New YOrk: W.W. Norton & Co., 1960), 375, and
C. P. Kindleberger, "The Terms of Trade and Economic Devel-
opment," The‘Review of Economics and Statistics, Supplement
(February, 1958), 85. ‘—

46

empirical evidence, reaches the following conclu-
sions:

Even if some of the doubts expressed concerning the

validity of the long-run downward tendency of the

terms of trade are correct, it seems fairly clear
that over long and crucial periods of time in the
twentieth century terms of trade have been declin-
ing for many peripheral areas. And the few per—
iods of primary materials boom were not sufficient
to build up enough reserves for adverse periods.

This has been especially true for the greater part

of the 1950's, when concern for economic develop—

ment has become increasingly important.

With reference to Prebisch's explanation for the
deterioration of the terms of trade and their effects
for peripheral countries, Baer concluded that the ". . .
low income elasticities of Center countries and high in-
come elasticities for peripheral countries has validity

2
for many important areas in the world." Moreover,
although it is difficult to prove that the unfavorable
terms of trade for peripheral countries are partially
due to monopolistic pricing at the center and greater

degree of competition at the periphery, this study adds

support to the Prebisch-Singer thesis.

 

lW. Baer, op. cit., 179.

47

Thus it can be concluded that productivity condi-
tions and changes in international demand have handi-
capped or diminished the relative benefits of inter-
national trade that can accrue to primary producing
countries such as those in Latin America. However, to
conclude from that that the concentration of primary
production has been one of the principal inhibiting
factors of Latin America's long-run economic develop-
ment seems to be an over simplification of the complex
aspects of Latin American development. Some of the
responsibility for the slow rate of economic growth in
Latin America obviously can be attributed to fiscal and
economic policies pursued by the governments of the
various countries as well as to the political, and
social organizations of the nations.1 Moreover, Meier
points out that market imperfections in primary pro-
ducing countries (such as ignorance of market condi-
tions, factor immobility, restrictive tendencies both

in the factor and goods market, monopolistic and

 

1B. A. Rogge, ”Economic Development in Latin

America: The Prebisch Thesis," Inter—American Economic
Affairs, Vol. IX, No. 4 (Spring, 1956), 34.

48

semi-monopolistic practices, restraints on land ten-
ure, marketing facilities and capital markets) suggest
that in the past, domestically—based impediments to
development have been more influential than any obsta-
cle attributable to international forces. Moreover,
Meier believes that these domestic impediments have not
only reduced the "gains from trade" but also the "gains
from growth" that can emerge from the former.1
Policy conclusions derived from deteriorating terms

of trade argument have not gone unchallenged either.
ECLA's doctrine of accelerated industrialization and
‘import substitution has been criticized by Meier; he
believes that although there is a place for import
substitution, in order to achieve a higher rate of
growth, Latin American countries cannot afford to em-
phasize replacement of industrial imports at the ex-
pense of policies designed to increase productivity,
diversification of primary production, and replacement

. . 2 . . . .
of agricultural imports. Meier's critiCism of ECLA's

1Gerald M. Meier, op. cit., 54.

21bid., 62.

49

economic policy is based both on general principles and
on empirical studies of Latin America's replacement of

industrial imports and general production conditions in
the post-war period.

According to Meier, the post—war Latin American
economic performance has been rather discouraging.
Although aggregate agricultural production has increased
over prewar level in absolute terms, the rate of growth
has failed to keep up with industrial expansion and popu-
lation growth. Agricultural exports have grown on an
absolute basis (12 per cent increase in 1955/56 over
1949/50) but have actually decreased on per capita
basis. The growth rate of mineral production has fallen
substantially behind world rates of mineral production
except for iron ore and crude petroleum.

The reasons for these slow rates of growth of pro-
duction are to be found in economic and monetary poli-
cies of the particular governments. In many cases, the
increase in the money supply has not increased aggre-

gate demand and the use of underemployed resources, but

 

1Meier, op. cit., 60-62.

50

has led to inflation. Industrialization programs have
withdrawn labor from agriculture and without a change
in the other factors agricultural output per capital
has declined.1 This suggests that disguised unemploy—
ment is not wide-spread. Moreover, inflationary trends
have tended to maintain investment in agriculture at
low levels and actually decreased in per capita abso—
lute terms. All these factors plus the lack of an ef-
fective program of agricultural development have caused
a decline in agricultural output per person. In order
to satisfy the rising demand for agricultural products,
many Latin American countries have imported food.
Moreover, due to foreign exchange shortages, agricul-
tural imports have had to be controlled. As a result,
prices of agricultural products have risen more rapidly
than the general price level. Based on this evidence,
Meier concludes that the concentration of limited
financial and human resources on industrialization pro-
grams, the attraction of productive resources to the

industrial sector, and the inflationary consequences

Ibid., 60.

51

of industrialization, have handicapped primary pro-

duction.1 With respect to industrial import substi-

tution policies, Meier observes that:

From the general arguments against the replacement
of industrial imports and the particular experi-
ences of Latin American economies during the post-
war period, we may suggest that the development of
primary production and the promotion of exports
should have higher priority than import replacement.
Although under certain conditions there is place
for import substitution, its role is limited, it
has generally resulted in higher prices, excess
capacity in the import competing industries, and

a domestic product of inferior quality. Moreover,
to the extent that import substitution has been
directed to industrial products that have re—
quired capital-intensive methods of production,

it has failed to absorb as much labor as would
more labor-intensive activities. NOr has the
expansion of industries producing non-durables
allowed the highest possible net saving of imports
(that is, the value of imports replaced minus
direct and indirect costs of equipment, operating

and maintaining the industry).2

 

lIbid.

2Meier, op. cit., 62. The last point mentioned in
the quotation is by no means the one advocated by ECLA
with respect to the feasibility of import replacement
industries. According to Prebisch, protection is
economically justified when the possible fall in export
prices is greater than the higher cost of internal
production in relation to imports (see page 39).

52

In View of the experience with import replacing
industries, and the relatively stagnant agricultural
production, Meier concludes that ". . . it would appear

more desirable to concentrate the import replacement
programmes in the direction of foodstuffs and raw mate-

rials."1 Policies helping to achieve this purpose would

not only lessen the dependence on imports, but would
also improve the balance of payments situation to the

same extent as would the replacement of industrial

products. In addition, agricultural products and raw

material import replacement policies would have the ad-
vantage of not adversely affecting exports or contri-
bute to the establishment of uneconomic industries.
The Role of Agriculture in
External Balance and
Internal Growth

In the preceding sections of the chapter, we have

explored some of the problems and disadvantages in-

volved in the specialization of production in agricul-

tural and raw materials for export. There are, however,

Ibid.

Ibid.

53

a number of important functions that agriculture per-

forms in the process of economic development. The

discussion which follows relates agriculture's role
in economic development through its contribution to

external balance and internal growth of a nation.

Agriculture's Role in External Balance
The principal role of agriculture in external bal—

ance is as a source of foreign exchange for capital

This

imports required in the process of development.

means that as a nation's export agriculture expands,

export earnings will likely increase. This will en-

able a nation to increase its capital imports in the

4!

form of products or equipment which it obtains at a

lower cost than they could possibly obtain from in-

digenous sources. Some economists contend that mar-

ket instabilities and the inelastic world demand for
primary products act as an important constraint on

the economic development of primary producers. Their
policy prescriptions are that these nations should

diversify their economies and emphasize industrial

production rather than the output of primary products.

Morgan, however, points out that:

54

High price instability for primary products is a fact.
But are the policy implications valid? Price varia-
tion is not an argument for staying out of a given

line of production, but rather for a discount on (aver-
age) returns--for calculating whether expected net re-
turns minus expected net returns in each of the alter-
natives. Such calculations will often lead to some
diversification, but it will not lead to a flat choos-
ing of unremunerative price—stable production.

Thus, while in the long run, it may be feasible to em-

phasize industrial production, of greater immediate impor-
tance is the function of present day exports in providing
the foreign exchange required for capital imports which

would allow long-run economic development and lessen de—

pendence on export proceeds. Furthermore, present day

exports not only cmxu to an existing foreign market but
also, may face a relatively elastic demand schedule in the

short run. The reason being that exports of any given

country probably account for only small percentage of the
world's trade in the commodity or commodities concerned;

therefore, a country can expand its exports without

causing any significant decline in prices.

_

l . .
Theodore Morgan, "Comment: Some Interrelationships

Between Agricultural Trade and Economic Development,"
Boris C. Swerling's paper presented at a Social Science
Research Council Meeting at Stanford University (NOvember,

1960), 4.

55

Diversification of exports, while not reducing the

dependence on export proceeds, can provide a more stable

flow of foreign exchange by spreading the risk of single

price declines over wider range of commodities. A prof-

itable export crop can frequently be added to an existing

cropping system. Some writers believe that the capital

requirements for such innovations are often moderate and

largely dependent on direct, non—monetary investment by

farmers.

It must also be remembered that considerable real

income to launch development programs can be amassed

during periods of high-import prices. Domestic markets

of most underdeveloped countries are, in general, too

small to justify the establishment of industries pro—

ducing capital goods which are essential for the success

of any development program. In addition, the possibil-

ity of developing a sufficiently large market are lim-

ited. Therefore even when considering long~run develop-

ment, the maintenance of an ever-growing supply of

1B. F. Johnston and J. W. Mellor, ”The Role of
Agriculture in Economic Development,” American Economic
Review, Vol. LI (September, 1961), 575.

 

 

56

imports is of prime importance. Unless domestic indus—
tries achieve a degree of efficiency and productivity
sufficient enough to make their products competitive in
international markets, agricultural exports will have to
pay for capital imports.

In summary, the expansion of agricultural export
production is sometimes a promising and rational means of
augmenting foreign exchange earnings despite unfavorable
world supply-demand conditions. Neglect of the export
producing sector of an economy, combined with a rising
demand for imports, have often resulted in balance of

payment problems and external imbalances.

Agriculture's Role in Internal Growth

Agriculture can play an important role in the inter-
nal growth of an economy by: a) providing increased food
supplies, b) releasing labor to non-agricultural sectors,
c) contributing to capital formation, and d) providing a

market for industrial products.

57

Providing Increased Food Supplies

Apart from autonomous changes in demand, the annual
rate of increase in demand for food depends on the rate
of population growth, per capita income and the income
elasticity of demand.

A growing food supply is of major significance in
underdeveloped countries. The rapid rate of population
growth which many underdeveloped countries are exper—
iencing exerts great pressures on the available supplies
of food. Furthermore, the improvement in nutritional
standards resulting from increased incomes, accentuate
this problem. Annual rates of population growth of 3
per cent of higher are not uncommon in underdeveloped
countries. In the case of Latin America, which is ex-
periencing average annual rates of population growth as
high as 2.7 per cent,1 this factor alone accounts for a
substantial increase in demand for food. Secondly, not
only large proportions of per capita income are spent
on food, but also the income elasticity of demand for

foodstuffs, is very high in underdeveloped countries.

1"Latin America: A Decade of Decision," Population
Bulletin, Vol. XVII, No. 2 (April, 1961), 21.

 

 

58

It has been estimated that the income elasticity of
demand for food in Latin America is about 0.7 on the
average.

With per capita income rising in the process of
development, high income elasticities of demand for
food, high rates of population growth, together with
high percentages of total consumption spent on food,
increased food supplies are of primary importance.
Failure of supply of food to keep up to the growth of
demand may have adverse effects on underdeveloped
nations. On the one hand, demand pressures on scarce
supplies are likely to result in substantial rises in
food prices. The inflationary impact of a proportional
increase in food prices upon the general price level is
more severe in underdeveloped countries than in dev-
eloped ones because of the higher proportion of income
spent on food and the higher income elasticity of
demand in the former than the latter. A rise in food

prices may lead to political discontent if there is a

l .
T. W. Schultz, "Prospects of Primary Products,"

Economic Development for Latin America, op. cit., 316.

59

lag in increases in wage rates and salaries. Moreover,
higher wages may lead to lower industrial profits and
to a slower rate of economic growth. On the other
hand, if supplies fail to keep in pace with the growth
in demand for food, a nation may expand food imports
which compete with capital imports for foreign exchange
and thereby slow down the rate of growth.

Transfer of Manpower from Agricultural to Non—agricul-
tural Sectors.

The assumption that the marginal productivity of
labor in agriculture is zero or even negative, is a
factor very frequently cited. If this assumption is
valid, it follows that labor can be transferred from
agriculture to manufacturing or other expanding sectors,
without any appreciable effect on agricultural output.
However,the presence of disguised unemployment in
agriculture is debatable, at least in some parts of the
world. Experiences in Latin America suggest that dis-
guised unemployment does not exist,1 or that its

presence cannot be substantiated by empirical evidence.2

1See page 50 .

2
Op. cit., 321.

60

Even if disguised unemployment does not exist, the
agricultural sector constitutes an important reservoir
of labor. Productivity increases in agriculture will
make it possible for labor to be transferred to other
sectors, without adverse effects on agricultural out-
put. In fact, the agricultural sector will benefit
from this transfer. As labor is transferred, pres-
sures on land are reduced and consolidation of farms

is facilitated.

Agriculture's Contribution to Capital Formation
Underdeveloped nations striving to achieve eco~
nomic progress are faced with large requirements of
capital for investment in manufacturing and other
productive enterprises, social overhead facilities and
human capital investment. Agriculture can make impor-
tant contributions to capital formation, particularly
in early stages of development when the capital inten-
sive sector is relatively small. The sheer size of
the agricultural sector, as the major existing indus-
try, indicates its importance as a source of capital

for general economic development. Agriculture's net

61

contribution to capital formation can be increased
by means of rising productivity through the reorgan-
ization of resources already committed to agricultural
production, or through moderate capital outlays on
present patterns of production. Johnston and Mellor
feel that the latter prospect has been generally under-
emphasized by some economists. If productivity gains
are passed to consumers in the form of lower prices,
the internal terms of trade will not deteriorate, or
even improve in favor of the industrial sector. Con-
versely, if productivity gains are retained by pro-
ducers in the form of higher incomes, they can be off—
set by other means--land or income taxes or both.

With respect to the role of agriculture's contri—
bution to capital formation, Johnston and Mellor have

stated that:

The conclusion suggested to strongly by both theo-
retical considerations and historical experience is
that in underdeveloped countries, where agriculture
accounts for some 40 to 60 per cent of the total
national income, the transition from a level of
savings and investment that spells stagnations to
one permitting a tolerable rate of economic growth
cannot be achieved unless agriculture makes a

62

significant net contribution to capital formation

in the expanding sectors.l
Agriculture as a Market for Industrial Products

Agriculture provides a substantial market for in—
dustrial goods and many industrial projects can direct
their production toward the agrarian sector. Agricul—
ture provides a potential market for manufactured
products; not only goods for human consumption but also
capital input goods.

The development of this agricultural market will
depend to a great extent on the increment in real in-
come of the rural population which will tend to shift
agriculture's demand for industrial products.

If, on one hand, agriculture's purchases of indus—
trial products emphasize human consumption goods,
agriculture's contribution to capital formation for
overall economic development can be substantially
reduced. If, on the other hand, increases in real

income in the rural sector are used for industrial

 

1B. F. Johnston, J. W. Mellor, o . cit., 579.

63

capital input purchases, the contribution to capital
formation will be reduced at any given time but pro-
ductivity increases will make possible a larger con-
tribution in succeeding periods. Therefore, although
agriculture's contribution to capital formation for
overall development and increased purchasing power of
the rural population are conflicting issues, they are
not mutually exclusive. Moreover, substitution of
domestic output for imported manufactured products
often provides a significant addition to demand which

does not depend on real income increases.

Summary
Primary producers are often confronted with two

main problems in their relations with industrial
countries: first, instability of export proceeds on
account of price instability of primary products and
second, a relative decrease in the capacity to import
due to the deterioration of their terms of trade.
Industrialization has frequently been suggested as
the structural solution to both of these problems

affecting the external balance of primary producers.

64

Industrialization, however, is a long—run process
which does not offer an immediate solution to the
price instability problem. A number of national and
international policies and programs are now being
used to counteract price instabilities of primary
products. Many others have been proposed. It can be
concluded that there is no ”best” price stabilization
policy since every policy must take into considera—
tion the unique supply—demand and production condi-
tions of the commodity in question. Whichever poli-
cy is advocated, in order for it to be beneficial to
both producers and consumers, the stabilized price
should not interfere with long-run price shifts.
Finally, price instability is not an argument to stay
out of a given line of production. On the contrary,
price instability merely requires that the discounted
average expected returns in primary production be com—
pared with alternative production possibilities. When
this allowance is taken into consideration, it is often
Wise for a nation to continue placing a high priority
on producing primary products in order to earn for-

eign exchange.

65

Industrialization has often been suggested as the
solution to deteriorating terms of trade. In order to
maintain the capacity to import, to increase employment
and to prevent relative income transfers to industrial
countries, it has been advocated that primary producers
(especially in Latin America) accelerate industriali-
zation. Over the past ten years, an increasing number
of Latin American countries have concentrated scarce
human and financial resources on import replacing indus-
trialization programs at the expense of agricultural and
other primary production. According to Meier, indus—
trialization policies in Latin America in recent years
have led to higher prices, failure to absorb labor sur-
pluses, failure to allow the highest possible net sav-
ings of imports, excess industrial capacity and in some
cases, the establishment of industries with heavy import
requirements. Moreover, the neglect of agriculture and
other primary production has often resulted in stagnant
rates of growth in these activities and food shortages
Which, in many instances, have had to be met by agricul—
tural imports. To overcome these numerous difficulties,

it has been suggested by some economists that Latin

66

American countries should expand their output of food
and primary products and place less emphasis on import
replacement industries.

Agricultural exports can contribute to the external
balance and internal growth of a nation by paying for
capital imports required for economic development.
Agriculture also has two important contributions to the
internal growth of a nation. First, agriculture must
provide increased food supplies for higher incomes and
a growing population. Second, agriculture is an impor-
tant source of revenue for capital formation required
for general economic development. Moreover, agricul-
ture can provide the labor force required by other ex—
panding sectors, as well as serving as a major market

for industrial products.

67

CHAPTER II

SCOPE OF THE THESIS

General Considerations

In the preceding chapter we have explored the litera-

ture and current thought pertaining to four topics in
particular; a) economics and economic characteristics
of small nations, b) the instability of international mar-
kets and stabilization schemes for primary producing
countries, c) the problems of deteriorating terms of
trade against primary producers and finally, d) the con-
tribution of agriculture to economic development through
external balance and internal growth.

Costa Rica is a small underdeveloped nation of one
and one—quarter million people. Moreover, as is char-
acteristic of most underdeveloped countries, it relies
very heavily on agricultural export proceeds and indus-
trial imports for its economic welfare and development.
Cost Rica is therefore, subject to and affected by
instabilities of international markets. In addition, the

terms of trade affect Costa Rica's development possibili-

ties. Moreover, being primarily an agricultural country,

68

agriculture plays a very important role in the external
balance and internal growth of Costa Rica.

Chapter I has provided a theoretical framework of
the economic instability of primary production and the
terms of trade with special reference to Latin America.
My purpose now is to turn to Costa Rica and in remain-

ing chapters to present empirical data on each of the

four aspects outline above. This analysis will enable

us to appraise the performance of the country's agri—

culture and its contribution to the growth and develop-

ment of Costa Rica.

General Literature on Costa Rican Development

There is a relative scarcity of literature dealing
with Cost Rican development. I have therefore, had to
rely considerably on raw data published by the various
official agencies of the Government of Costa Rica. To
my knowledge, the only literature on Cost Rica's eco-
nomic development available at the present, are the
following publications: a) a 1952 publication by May,

Faaland, Kock, Parsons and Senior on Costa Rica's

69

economic development1 covering the 1940—1950 period

with special emphasis on the second half of the 1940's,
b) a series of three studies prepared by the Economic
Development Project of the University of Costa Rica:

one covers the External Sector of the Costa Rican
Economy2 during the period 1946—1954, a second one
studies the Industrial Sector3 during 1946—1957, and

the third one deals with the Agricultural Sector4 during
the 1950-1956 period, and c) a United Nations' study pre-

pared by Louis Ducoff5 which deals with the human resources

 

lStacy May et a1, Costa Rica: A Study in Economic Dev—
elopment (New York: The Twentieth Century Fund, New York,
1952).

2 . . . .
UniverSidad de Costa Rica, El Desarrollo Economico de
Costa Rica-Sector Externo (Ciudad Universitaria, 1958).

3Ibid., Estudio del Sector Industrial, (1959).

4
Ibid., Estudio del Sector Agropecuario, (1959).

5 . . . . . .

United Nations, ComiSion Economica para la America
Latina, Los Recursos Humanos de Centroamerica, Panama y
Mexico en 1950—1980 (New York: 1960).

70

of Central America, Mexico and Panama and their relations

to some aspects of economic development.

Statement of the Thesis Problem

In view of May's study of Costa Rican economic devel-
opment for the 1940-1950 period, the purpose of the thesis
is to analyze the role and performance of Costa Rica's
agriculture in the external balance and internal growth

of the Costa Rican economy during the ten—year period,

1950-1959.

Methodology and Procedure

The organization of the remainder of the thesis is
as follows:

Chapter Three depicts the general characteristics of
Costa Rica. It deals with geographical and historical
aspects, political organization, major public institutions
aiding economic development in Cost Rica, international
ties and demographic characteristics of the population.

Chapter Four presents a brief review of Cost Rica's
economic history since the 1930's and explores the per-

formance of the Costa Rican economy during the period

71

1950-1959 using national income statistics. These

national income data for Costa Rica are analyzed by

using seven different statistical methods presently

available for the computation of annual growth rates.
Chapter Five discusses the social and economic

organization of Costa Rica's agriculture, such as agri-

cultural regions, land use, land distribution, etc. In

addition, it covers trends in production of principal

crops and livestock.
The contributions of agriculture to the internal
growth and balance of Costa Rica's economy are explored

in Chapter Six. This chapter presents agriculture's

contribution to Gross Domestic Product and its growth

during the period considered, as well as the influence

of agricultural prices on the general price level. More-

over, the principal agencies responsible for Costa Rican

agricultural development are examined.

The role of Costa Rica's agriculture in external

balance is covered in Chapter Seven. This chapter deals

with exports, imports and their composition, balance of

trade and balance of payments situations, terms of trade,

export price stability, etc.

72

Finally, Chapter Eight summarizes the findings of the

thesis and their implications for future development.

73
CHAPTER III
GENERAL CHARACTERISTICS OF COSTA RICA

The purpose of this chapter is to delineate the
social, political and historical aspects of Costa Rica
in order to understand better the economic problems

which are discussed in later chapters.

Historical Characteristics

Costa Rica is located in the central part of the
American Isthmus. This small country of 23,000 square
miles borders with Nicaragua in the North, Panama in

the South, the Pacific Ocean in the west and the Atlantic

Ocean in the East.

Costa Rica was discovered by Christopher Columbus in

September, 1502. Columbus landed at Cariari (Port Limon)

on Costa Rica's Atlantic Coast on his fourth and last

trip to the New werld. The Pacific Coast of the country

was later explored (1519) by the Spanish Conquerors.

The conquest of Costa Rica was terminated in 1564

with the founding of Cartago by the Adelantado Mayor Don

Juan Vazquez de Coronado. Cartage was the capital of the

Ducado de Veragua (Costa Rica).

74

Costa Rica acquired its independence from Spain on
September 15, 1821, and became a member of the Central
American Federation. In 1848, Costa Rica was separated

from the Federation and became an independent and free

nation.

Political Organization of
Costa Rica

Political Division

The Costa Rican territory is divided into seven
provinces, sixty-five cantones (counties) and 326 dis-
tricts. Each province is governed by a Governor ap-
pointed by the President of the Republic. Cantones are

in turn governed by a board elected by universal suffrage.

Government

Costa Rica has a centralized government with three
distinct and independent powers: Legislative, Executive

and Judicial.
The Legislative power is in the hands of a Legisla-

tive Assembly of forty-five members elected for four year

terms. Members of the Assembly cannot be re-elected for

successive terms.

75

Bills may originate at the Assembly or at the Execu-
tive branches of the government via members of the Cabinet.
They ordinarily become laws upon a simple majority vote of
the chamber and approval of the President, although certain
laws are required by the Constitution to have larger
majorities.

The Executive Power is vested in the President of the
Republic and the Ministers of Government. There are two

vice-presidents who along with the President are elected

by universal suffrage. The presidential term is for four

years beginning May 8th.

The Judicial Power is vested in the Supreme Court of
Justice which appoints its own personnel and that of other
courts. The Judicial branch of the government consists of

L

sixty-one Alcaldias (Justice of Peace Courts), twenty—two

 

Lower Courts, fourteen Labor Courts, a Court of Cassation

(with five Magistrados or member Judges of the Supreme
Court. The Plenary Court consists of seventeen Magistrados;
five from the Court of Cassation, twelve from the Civil
Courts of Appeal and the Penal Courts of Appeal. The

fifteen Magistrados constitute the Supreme Court of

Justice. Magistrates of the Supreme Court are elected for

76

eight year periods and are regarded as re—elected for a
like period unless the Legislative Assembly decides other-

wise by a vote of two-thirds of the entire membership of

the Chamber.

Suffrage and Elections

Suffrage is exercised under the supervision of election
boards by universal, secret and compulsory vote by citi—
zens registered in the Civil Register. The organization,
direction and supervision of acts relating to suffrage are
exclusively a function of the Supreme Tribunal of Elections,
which is an independent agency carrying out this function.
This Tribunal is composed of three principal Magistrates
and three alternate ones appointed by the Supreme Court of
Justice by a vote of not less than two-thirds of its member—
ship. They are elected for six terms and enjoy the same
immunities and prerogatives as are granted to the three
powers into which the government is divided. Decisions of
the Supreme Tribunal of Elections cannot be appealed ex-

cept on grounds of prevaricato (betrayal of trust).

77

Local Government

For the purpose of public administration, the Costa
Rican territory is divided into seven provinces, these in
turn into sixty-five cantones and the latter in terms of

distritos (326).

The administration of local interest of each cantén is

 

vested in a Municipal Government consisting of Regidores
elected by universal suffrage for a four year term. These
positions are compulsory and honorary. An Executive Offi—
cial is appointed by the Regidores, who is traditionally
the Governor of the Province. Municipal corporations are
autonomous. Each district is represented in the Munici—
pal Assembly of the Cantén by a Sindico with right of
discussion but no vote. Municipalities require authori—
zation from the Legislative Assembly to contract loans,

to mortgage their property or to alienate real or

removable property.

78

Major Institutions in the Public Sector
An important role of government is to create and en-

courage the development of the proper ”environmental
conditions” in which economic activity and economic
growth are to occur. The institutional framework is an
important element in creating conditions which are pro—
pitious to economic growth, especially in the early
stages. In some instances, the institutional organiza—
tion of governments may inhibit and curtail economic
growth; in such cases, institutional changes are re-
quired to facilitate progress. Gorwth—promoting insti-
tutions, whether in the private or in the public sector,

have a very prominent and important function in the

process of economic growth. In fact, Wolf has stated

that:

Institutions--as well as capital and technology—-
are protective; or, more accurately, different insti-
tutions have differentially productive consequences.
Growth-promoting institutions, without themselves
adding resources to the economy--or at least by a
process that is distinguishable from any resources
which they directly add—-may so restructure the en—
vironment in which factors of production meet that
the rate at which combinations occur is accelerated.1

lCharles Wblf, Jr., "Institutions and Economic Develop-
ment,” reprinted in Okun and Richardson, Studies in Economic
Development (New Ybrk: Ho1t, Rinehart and Winston, Inc.,
1961), 349.

79

Since the importance of institutions in economic
development cannot be underestimated, we intend to ex-
plore, in the following pages, some of Costa Rica's
major institutions in the public sector. These insti-
tutions are the Ministries of Government, their spec-

ialized agencies, and the Autonomous Institutions of

the State.

Ministries of Govepppent and Specialized Agencies

All Ministries of Government have a direct or indi-
rect role in stimulating economic development. However,
only the Ministries of Economics and Revenue, Agriculture
and Livestock, Industries, Public werks and Public Edu-
cation have a specific commitment to development. These
Ministries have specialized agencies which are responsi-
ble for research and policy prescription to be followed
or pursued; they are, in fact, advisory departments to

the pertinent Ministries in policy issues.

Ministry of Economics and Revenue
The General Direction of Economics is the most
important agency within this Ministry. The duties of

this agency are, among others, the coordination of all

80

activities leading to the Central American Economic
Integration. Furthermore, it makes recommendations in
matters pertaining to international treaties and agree—
ments and controls ceiling prices of consumption goods

in the domestic market.

Ministry of Industries

The most important agency in the Ministry of Indus—
tries is the General Direction of Industries which has
direct control over all matters pertaining to the indus-
trial development except in those aspects pertaining to

credit and the application of industrial laws.

Ministry of Agriculture and Livestock
The General Direction of Agriculture of this Ministry
is responsible for studies and policy pertaining to agri-

culture, livestock, forestry and extension services.

Ministries of Public werks and Public Education
The Ministry of Public werks has the responsibility
to construct and maintain the road network as well as other

public works.

81

The Ministry of Public Education controls and super-
vises all educational establishments in Costa Rica with

the exception of the University of Costa Rica.

Tariff Commission

The Tariff Commission is an independent official
agency designed to study and make recommendations per-
taining to tariff and import duty policies. Recommenda-
tions made by this organism are enacted and enforced by

the General Direction of Economics.

Autonomous Institutions

As the name implies, autonomous institutions are
official institutions independent of the centralized
government. They were organized to permit technical and
administrative expansion of the State, yet avoiding the
hazard of excessive accumulation of political authority
and new functions in the hands of the State.1 Autono-
mous institutions are relatively new, most having been

created after 1949. Together they now form a highly

 

lRodrigo Facio, Planificacién Econémica en Regimen
Democratico (San José, Costa Rica: 1959), 54. This docu—
ment was published in full in Universidad de Costa Rica,
Revigta de Ciencies Sociales, No. 4 (September, 1959).

82

important and significant feature of the economy. These
autonomous institutions of the State are controlled by
boards of directors of five to seven members, in most
cases appointed by the President of the Republic. In
case of a change of national political administration,
control of the board of directors of the institutes
cannot change except when the membership expires. Among
the autonomous institutions are the Nationalized Banking
System, the National Production~Council, the Costa Rican
Institute of Electricity, the National Institute of
Housing and Urbanization, the University of Costa Rica,
the Pacific Electric Railway, the Social Security Board

and the National Insurance Agency.

Nationalized Banking System

The Costa Rican banking system consists of the Cen-
tral Bank, the National Bank of Costa Rica, the Anglo-
Costa—Rican Bank, the Bank of Costa Rica, Lyon Bank and
the Bank of Agricultural Credit of Cartago.

The Central Bank is designed to promote the orderly
development of the Cost Rican economy with the purpose
of achieving the highest possible utilization of the

productive resources of the Nation. For this purpose,

83

the Bank has the complete cooperation and support of the
State, its dependences and institutions. In 1957 the
Bank created the Section for the Preparation of Specific
Investment Projects to encourage the investment in certain
priority projects.

The National Bank of Costa Rica was established in
1914 under the name of The International Bank of Costa
Rica. This Bank, as well as other banks which were pri-
vate at one time, has the duty to finance those banking
operations related to the development of agriculture,
livestock and industrial production; to stimulate savings;
to promote agricultural credit and the economic and soc-
ial conditions of producers. The National Bank of Costa
Rica administers the Costa Rican Agricultural Credit Sys-
tem (Juntas Rurales de Crédito Agricola). In addition
to the above mentioned duties, these banks are supposed
to encourage the creation and expansion of new and exist-
ent industrial enterprises; to foster and encourage the
cooperative movement and to collaborate in the applica—

tion of fiscal policy of the Republic.

84

National Production Council

The National Production Council has among its duties
encouragement of agricultural and industrial production
of the country, and the application of the price stabili—
zation for agricultural products. In addition, the C.N.P.
cooperates with credit institutions, the agricultural
extension service (STICA) and any other institution whose
efforts are aimed to the increment of national production.
The C.N.P. also administers and operates the national

liquor monopoly whose revenues represent over 25 million

colones annually.

Costa Rican Institute of Electricity

This agency was created to channel the use of hydro-
electric energy to promote industrial development and
economic production. The Institute of Electricity is
the owner and operator of 58 per cent of the country's
electric power and receives an annual subvention from

the government of 10 million colones.

National Institute of Housing and Urbanization
This autonomous institution is a public housing

authority intended to stimulate the development of those

85

industries which contribute directly to the solution of
housing and urbanization problems. This autonomous in-
stitution is guaranteed a subvention equal to two per

cent of the amount of the annual government budget.

University of Costa Rica

The University is the only autonomous institution
directly concerned with education. It is guaranteed a
subvention of 10 per cent of the amount of the annual

government budget of the Ministry of Education.

Pacific Electric Railroad

The Pacific Electric Railroad, which began operating
in 1925, controls the operation of the railway connecting
the Central Plateau and San Jose with the Pacific Coast
and the Port of Puntarenas. The railroad receives no

direct subvention from the State.

Other Autonomous Institutions
The Social Security Board and the National Insurance
Institute have no direct concern with the material aspects

of the economic development of Costa Rica, but they are

86

both very important from the point of view of invest-
ment institutions. The organic law of both of these
institutions obliges them to invest their monetary re-

serves in activities which yield a high rate of profit.

The Coffee Office

The coffee Office is a semi-autonomous institution
connected with the Ministry of Economics. Among the
duties of the Office is the regulation of all economic
aspects of the coffee industry in Costa Rica, including
the enforcement of international quotas. The Coffee
Office was reorganized in 1948 to take direct responsi—
bility of the Costa Rican Coffee Exchange and the gpppa
de Liquidaciones del Café, both established in 1933.
The Junta sets the minimum price to be received by pro-
ducers from coffee mills buying their coffee. This
price is determined at the end of the production year,
based on prices received by individual coffee mills
from the sale of their coffee in international and
domestic markets.

The Coffee Office must authorize all pruchases or

sales of coffee, including authorization of exports.

87

No coffee transaction can be made without having been

registered and approved by the Office.

The Coffee Office is ruled by a Board of Directors
composed of five members elected for two year periods.

Associations of producers, millers, roasters and ex—

porters, and the Ministry of Economics, are each repre—

sented by one member on the Board.

The operations of the Coffee Office are financed

by revenues obtained from transactions in the Coffee

Exchange, authorization of exports and direct allocation

of funds from the Legislative Assembly.

International Ties
In addition to the normal trade relationships with
most countries in the world, Costa Rica maintains com-

mercial treaties and bilateral agreements with a number

of countries, including Mexico, the United States,

Canada, Nerway, Denmark, The Netherlands, the United

Kingdom, Italy, France, west Germany, Japan, Uruguay,

Guatemala and El Salvador. Moreover, special trade

concessions are granted to Central American Countries.

As a corollary of Costa Rica's economic development,

88

Costa Rica is an active member in the Organization of
Central American States (ODECA), which seeks, among other
things, the progressive economic integration of the
Central American States. In 1958, along with other Cen-
tral American Republics, Costa Rica signed the Agreement
for the Central American Economic Integration. The
fundamental features in this Agreement are: a) the
Multilateral Free Trade Treaty, b) the Agreement for the
Integration of Central American Industries, and c) the
Central American Agreement for the Equalization of Duties
on Imports. The number of items included in the Free
Trade Treaty is small in terms of the volume of trade
among the five Central American Republics.l It is hoped,
however, that the list of items included will be sub-
stantially expanded over the initial ten year period of
the Agreement.
The Agreement for the Integration of Central American

Industries envisages the integration and development of

industrial plants whose products will enjoy free trade in

the Central American market, thus making possible the

 

1Panama is not included in the overall plans of Central
American Economic Integration. Nevertheless, Panama is parti-
cipating in some secondary treaties and trade agreements.

89

formation of industrial concerns which would be unprofi—

table on the basis of a single country market.

The Central American Agreement for the Equalization
of Duties on Imports is designed to encourage and stimu—
late free trade of Central American products and to lead
the way in providing the necessary incentives for the

achievement of the integration of Central American

industries.

Other international ties of Costa Rica are represented
by the membership ofcms a Rica in the International Wheat
Agreement and the International Coffee Agreement.

United Nations technical assistance to Costa Rica has

been largely concentrated in education, public health and

agriculture. An FAO mission has provided assistance in

the eradication of the hoof-and-mouth disease, in nutri—

tion, agricultural statistics and land colonization. The

World Health Organization has helped train nurses. Tech-

nicians of UNESCO have helped improve secondary and uni-

versity education. Another United Nations project which

has attracted special attention is the establishment of

the Central American School of Public Administration in

San Jose.

90

The Inter-American Institute of Agricultural Sciences
of the Organization of American States was established in
Costa Rica in 1942 on land granted by the Costa Rican
Government. The research and technical facilities of the
Institute are available to all participating member
nations.

The United States and Costa Rican Governments maintain
a bilateral technical assistance program through the Inter-
national Cooperation Agency. The largest project is the
International Technical Service of Agricultural Coopera-
tion (STICA), which is a joint program with the Ministry
of Agriculture and Livestock and ICA. STICA and the
Agricultural Extension Service were separate entities be-
fore they were united under the Ministry of Agriculture
and Livestock in 1956. Additional technical assistance
in the agricultural field is provided by the University
Of Florida and the University of Kansas to the University

of Costa Rica and the Ministry of Agriculture, respectively.

91

Demographic Characteristics of Costa Rica

Costa Rica's population has grown from less than half
a million in 1927 to 1.12 million in 1959. The rate of
population growth reached an all-time high of 3.87 per
cent for the 1950—1959 period, as shown in Table 3.1. This
makes Costa Rica one of the fastest growing countries in
the world. The rapid rate of population growth can be
attributed mainly to natural growth, since immigration has
been negligible. The high birth and fertility rates together
with rapidly declining mortality rates are the principal

factors determining the high rate of population growth.

TABLE 3.1

COSTA RICA: POPULATION AND POPULATION GROWTH

 

 

 

1920-1959
Year Population Growth Rate per Annum
1920 421,000
1927 480,326
1940 619,000 1.95 (1927-40)
1950 812,000 2.59 (1940-50)
1959 1,126,000 3.87 (1950-59)

 

Source: United Nations, Economic Commission for Latin
America, Los Recursos Humanos de Centroamerica, Panama y
México en 1950-1980, 1960, table 1, 4. Data for 1927 and
I950 from Direccion General de Estadistica y Censo, Areas
Eamoqraficas de Costa Rica (San José, 1959), table 1, 39.

92

Over one-half of the Costa Rican population (52.2 per
cent) lives in the central part of the country known as the
Intermountainous Valley. There is, however, a net migra-
tion from this area to the less densely populated regions

along the Atlantic and Pacific Coasts.

Population Density

The Costa Rican territory is not densely populated. In
1955, the average population density was nineteen inhabitants
per square kilometer. Corresponding figures for other Cen-
tral American countries for 1955 are: Mexico, fifteen;
Guatemala, thirty; and El Salvador, 110.2 By 1957, the
population density in Costa Rica had increased to 20.5
inhabitants per square kilometer.3 There are, however,
large differences in population density in the different
areas of the country. In fact, in 1957, population density
in the Intermountainous Valley was 142.3 inhabitants per

square kilometer. Conversely, the population density in

 

1 . . . .
Direcc1on General de Estadistica y Censos, Areas Demo-
ggaficas de Costa Rica (San José, 1959), 13.

2 , . . . .

United Nations, Economic CommiSSion for Latin America,
Los Recursos Humanos de Centroamerica, Panama! y México en
1950-1980 (New York, 1960), Table 2, 5.

31bid., 42.

93

other areas in Costa Rica is no higher than 13.2 inhabitants
per square kilometer.
Rural and Urban Economically
Active Population

Costa Rica is still a predominantly rural country, with
66.5 per cent of the population living in the rural sector.
The 1950 Census of Population shows that 36.7 per cent of
the total urban population and 32.5 per cent of total rural
population over twelve years of age are economically active.
This means that only one-third of the population is econom-
ically active and must support the remaining two—thirds of
the population.3

A large proportion of Costa Rica's active population is
engaged in primary production, namely, agriculture. Table
3.2 shows that 54.7 per cent of economically active popula-
tion is engaged in agriculture and forestry, 10.9 per cent in

manufacturing, and 14.7 per cent in services.

 

1 . . . . .
Direcc1on General de Estadistica y Censos, o . c1t., 46.

2 . . . , .

UniverSidad de Costa Rica, El Desarrollo Economico de
stta Rica! Sector Agropecuario (Ciudad Universitaria, 1959)
18.

3Ducoff has pointed out that 49.7 per cent of the popu-
lation between 10 and 12 years old is economically active in
Costa Rica. United Nations, 0 . cit., 142, table XXV.

94

TABLE 3.2

COSTA RICA, ECONOMICALLY ACTIVE POPULATION BY ECONOMIC
ACTIVITY, 1927 AND 1950

 

 

 

 

. . . 1927 1950
Economic Act1Vity
Number Per Cent Number Per Cent

Agriculture and

forestrya 91,791 61.77 148,837 54.72
Mining and quarrying 398 0.27 754 0.28
Manufacturing 11,701 7.88 29,870 10.98
Construction 5,933 3.99 11,625 4.28
Electricity, water and

sanitation service -- ~~ 1,607 0.58
Wholesale and retail

trade 8,541 5.75 21,412 7.87
Transportation, storage

and communications 3,643 2.45 9,465 3.48
Services 21,223 14.28 40,166 14.77
Other 5,369 3.61 8,248 3.03
Total active population 148,599 100.00 271,984 100.00

 

aIncludes fishing and hunting.

Source: Universidad de Costa Rica, El Desarrollo
Egonémico de Costa Rica-—Sector Aqropecuario (Ciudad Uni-
versitaria, 1959), 19.

95

This table also shows that there has been a decrease
of seven per cent in the proportion of the labor force

engaged in agriculture from 1927 to 1950.

Determinants of Future Population

In a recent study of the human resources in Central
America, Panama and Mexico, Ducoff classifies Central Amer-
ica as a high potential population growth area. He asserts
that the principal determinants of demographic growth for
Costa Rica (as well as for Central America) are, and have
been in the past, the level of fertility and the level of
mortality.1 The net international migration has been negli-
gible and can be expected to continue to be negligible
although the process of economic integration of Central
America will stimulate and facilitate migratory movements
between the Central American countries.

Disregarding at this stage Ducoff's demographic pro-
jections it is still appropriate to mention the demographic
characteristics which make Costa Rica a country of high

potential population growth. As mentioned before, these

—¥

1 .
Ibid., 29.

2Ibid., 29, footnote 3.

96

determinants of future population are mortality, birth and

fertility rates.

Birth and Mortality Rates

These determinants of future population are shown in

Table 3.3.

The rapid rate of natural growth of population is due
to a 50.9 per cent decline in mortality rate and increase

in the birth rate of 11.4 per cent in 1952—56 relative to

the base period 1930-34.1 The decline in the mortality

rate has increased the life expectancy of the population

very considerably.

TABLE 3.3

COSTA RICA, BIRTH, MORTALITY AND NATURAL GROWTH RATES
OF POPULATION PER 1000 INHABITANTS,
1930-1934 AND 1952-1956

 

 

 

r

 

1930-1934 1952-1956 Per Cent Change
Birth rates 45.7 50.9 +11.4
Mortality rate 22.0 10.8 —50.9
Natural growth 23.7 40.1

 

Source: United Nations, Economic Commission for Latin

America, Los Recursos Humanos de Centroamerica, Panama y
Mexico en 1950-1980, 1960, 31.

Birth rates in the United States for the period 1952—

1956 were 25.1 per cent and death rates 9.4 per cent per
1000 inhabitants. Ibid., 31.

97

Fertility Rates

The fertility rate is the number of children under five
years of age per thousand women in the population between
the ages of fifteen and forty-nine. The fertility rate in
Costa Rica was 686 compared to 103 in the United States in
1950.

With a high birth rate, high fertility rate and rapidly
declining mortality rate, Costa Rica will probably continue

to experience a rapid rate of population growth in the

1960's.

Social Characteristics of the Population

Costa Rica has a homogeneous population. The ethnic
composition of the population, according to the 1950 Census
of Population, consists of 97.7 per cent Whites, 0.3 per
cent Indians, 1.9 per cent Negroes and 0.1 per cent Asians.
Furthermore, only 4.2 per cent of the population was born
in a foreign country. Spanish is spoken by 97.3 per cent
of the population.1

The level of illiteracy in Costa Rica is low relative

to Latin America. In 1950, 21 per cent of Costa Rica's

 

1
Ibid., 18-21, tables 11, 12, 14.

98

population ten years of age or older were illiterate. Illi-
teracy rates in the rural population amount to 28 per cent
while the corresponding figure for urban areas is only 8
per cent. The reason for these relatively low rates of
illiteracy is found in Costa Rican history. In 1886 the
Minister of Education, Don Mauro Fernandez ("The Father of
Costa Rican Education"), dictated and enacted the Funda-
mental Law of Public Education which established primary
education to be free, compulsory, laic and under the direct
responsibility of the State.2 Congress closed the Univer—
sity of Santo Tomas in 1887 in order to bring about a
greater expansion in primary education. Hence, in 1886
Costa Rica made the decision to give priority to invest-
ment in the human agent through universal education; this
investment decision is one of the topics which has attracted
a great deal of attention in the recent literature in

. 3 . .
economic development. The success of the deCiSion to

 

Juan Perez Fajardo, "Caracteristicas Educacionales de
Nuestra Poblacién," Atlas Estadistico de Costa Rica, Direc-
cion General de Estadistica y Censo (San José, 1953), 55.

Ricardo Fernandez Guardia, Cartilla Historica de Costa
Rica (33d ed.; San José: Imprenta Lehmann, 1960), 111.

3 . . .
T. W. Schultz, The Economic Test for Latin America (New

99

give priority to universal education is indicated by the
fact that illiteracy rates dropped from 89 per cent in 1864
to 68.6 per cent in 1892, to 24.0 per cent in 1927, to 21
per cent in 1950.1 The three per cent drop in illiteracy
rates from 1927 to 1950 is very significant if one considers
that population almost doubled during that period.2

The University of Costa Rica was founded in 1940 by
merging a number of independent colleges. The present col-
leges of the University and their founding dates are the
following: Law (1891), Pharmacy (1897), Fine Arts (1897),
PedagOgy (1914), Agriculture (1926), Philosophy (1940),
Engineering and Science (1940), Odontology (1941), Economics
and Social Science (1943), and Medicine (1959).3 The Uni—

versity of Costa Rica is an autonomous institution of the

State and receives a subvention of 10 per cent of the amount

 

York State School of Industrial and Labor Relations, Bulletin
NO. 35 (August 1956), 1-30, and ”Investment in Human Capi-
tal," American Economic Review, Vol. LI, No. 1 (March, 1961),
1-17; also, W. Arthur Lewis, "Education and Economic Develop-
ment," Social and Economic Studies, Vol. X (June, 1961), 113-
127.

l

Perez Fajardo, op. cit., 52.
2 .

Vide, table 3.1.

3Perez Fajardo, op. cit., p. 55.

100

of the budget of the Ministry of Education. The Ministry
of Education controls and supervises all primary and se-
condary education in Costa Rica and receives the highest
share of the Government budget; in 1959 this share amounted

to 71 million colones or 20 per cent.

Summary

Costa Rica has been a sovereign nation since it attained
its independence from Spain 141 years ago. This small coun—
try of 23,000 square miles is located in the narrow part of
the Central American Isthmus. Costa Rica borders with
Nicaragua in the north, Panama in the south, the Pacific
Ocean in the west and the Atlantic Ocean in the east. The
Costa Rican territory is divided into seven provinces and
governed by a centralized democratic government. The govern-
ment consists of three distinct and independent powers:
Legislative, Executive, and Judicial. National elections
take place every four years and are supervised by an inde—
pendent body called Supreme Tribunal of Elections.

The responsibility of Costa Rica's economic development
in the public sector is assumed by the Ministers of Govern-
ment and the autonomous institutions of the State. There

is, however, no official planning board. These institutions

101

are in charge of Costa Rica's international ties. Aside
from normal commercial relations with foreign countries,
Costa Rica has bilateral agreements for technical cooper-
ation with the United States Government. In addition,
treaties leading to the Economic Integration of Central
America have been signed with other Central American
countries.

The population of Costa Rica is slightly over 1.1
million and is growing at a rate of 3.87 per cent per year.
This makes Costa Rica one of the fastest growing countries
in the world. Costa Rica is largely a rural country with
66.5 per cent of its population and 55 per cent of its
labor force in the rural sector. Only one-third of the
Costa Rican population is economically active and must
support the remaining two-thirds of the population. Of the
total economically active population, 54.7 per cent is
engaged in agriculture, 10.9 per cent in manufacturing, and
14.7 per cent in services, and the balance in other activities,

Costa Rica is spending 20 per cent of its national budget
on education. Universal education has been a major aim of

. . 1
Costa Rican governments Since 1886.

 

lVide Chapter IV, table 4.1.

CHAPTER IV

THE CONTEMPORARY PERFORMANCE OF THE

COSTA RICAN ECONOMY

This chapter presents macroeconomic data for the Costa
Rican economy. A cursory review of the economic history of
the nation is presented for the late 1940's and for the
1950—1959 period. A note on the measurement problems of
economic growth follows. Since national income data for
the period 1950 to the present have been published only
since 1956, "modern economic computations" have been used
in Costa Rica only in recent years. Although there are
shortcomings in these aggregate data, an attempt is made
in this chapter to calculate and compare the over—all rate
of growth with the rates of growth of the major economic
sectors over the 1950-1959 period. Rates of growth for the
period under consideration are calculated by six different
methods which were recently appraised by Professor Boris

Pesek.l

 

Boris P. Pesek, "Economic Growth and Its Measurement,"
Eggnomic Development and Cultural Changg, Vol. IX, No. 3
(April, 1961), 295-315.

102

103
The Status of the Costa Rican Economy
in 1950: The Stacy May Study

The standard contemporary document on Costa Rican
development--The Stacy May Reportl--was an outgrowth of
the findings of a Twentieth Century Fund Study Group of
five economists who visited Costa Rica for six weeks in
1950. This group was asked to review the status of
economic development in the major sectors of the Costa
Rican economy. In addition, they were asked to recommend
specific development projects that might be undertaken with
the aid of technical and financial assistance from inter—
national agencies. The contents of the report pertain to
the general conditions existing in Costa Rica in 1950.

The conclusions and policy recommendations of the study
group can be classified as universal statements which would
be valid in 1950, 1960 or 1970 in Costa Rica or in many
other underdeveloped nations. They recommend for instance,
a general development plan for the country, establishment of
a better system of economic reporting and statistics as

guides for planning and development, expand and improve

_‘

l . . .
Stacy May et al., Costa Rica, A Study in Economic
Development (New YOrk: The Twentieth Century Fund, 1952).

104

scientific research in agriculture, encourage savings and
channel them to fields of agricultural improvements, pro-
cessing industries, and light manufacturing and assembly
industries, maintain a balanced budget and even a surplus
as long as inflation is not checked, and revision of the
government finances and tax collection systems.
With respect to the agricultural sector, the group

recommended expanding the production of domestically pro-

duced foodstuffs, and to expand and diversify exports.

Economic History of Costa Rica: 1950-1959

Let us review the major events in the Costa Rican econ—
omy from 1950 to 1959. The Foreign Exchange Law of 1950
established differential foreign exchange surcharges on
imports. This law also legalized the free market of foreign
exchange and directed the Central Bank to use no less than
20 per cent of its receipts of foreign exchange to pay off
accumulated backlog and to increase the available volume of
foreign exchange in the free market.

The Law of International Payments of 1951 replaces the
law mentioned above. By virtue of this law, all surcharges
are abolished but both the official and free markets of

foreign exchange remain legal. Moreover only "first

105

necessity imports" were to receive foreign exchange at the
official rate.

By 1951 the free market rate of the colon had dropped
to 7.00 colones per U.S. dollar; since 1952 this rate has
remained at 6.65 while the official rate of exchange was
5.60 (5.67 selling rate). During this period, the Costa
Rican balance of trade as well as the balance of payments
has been favorable to Costa Rica although deficits were
realized in several years.

Government expenditures rose from 140.8 million colones
in 1951 to 351.6 million colones in 1959. In spite of this
large increase in government expenditures, a surplus of
104.4 million colones was realized from 1951 to 1959. 1958
left a deficit of 0.4 million colones.2 The 1959 govern-
ment budget is reproduced in Table 4.1. In 1959, 68 per
cent of the total government revenue came from indirect
taxes, 15.3 per cent from direct taxes, 8.5 per cent from

corporation taxes and 8.2 per cent from other taxes.

1Balance of trade and balance of payments conditions
are explored in Chapter 7.

2Banco Central de Costa Rica, Memoria Anual de 1955 (San
José: 1953), 102; Memoria Anual de 1959 (San José: 1960),llZ

 

3Ibid., 1959, computed from data on 106.

106

The Costa Rican public debt decreased from 367.0 mil-
lion colones in 1951 to 323.1 million colones in 1954 to
reach 457.2 million colones at the end of 1959. During
the same period 1951-1959, the internal debt rose from
202.0 to 301.9 million colones, while the external debt
decreased from 164.5 to 155.2 million colones at the end
of 1959.1

This period was also characterized by the expansion of
credit on the part of commercial banks, especially after
1955. The volume of credit rose from 357.2 million colones
to 582.3 million in 1959. During this later year 43.3 per
cent of the credit was granted to agriculture, 15.4 per
cent to livestock, 11.8 per cent to industry, 10.8 per cent
to commerce and 18.7 per cent to other activities.

The price level during this period rose 7.7 per cent as
measured by the wholesale price index3 which suggests effec-
tive monetary and fiscal policies were operative. Three

important laws were enacted during this period to promote

economic development: the Mining Code law of 1953, the Indus

 

lIbid., 1955, 105; 1959, 123.
21bid., 1959, 179.
3

Refer to Chapter 6.

107

trial encouragement law of 1959 and the Economic Develop-
ment Law of 1959.

Previously, the mining code of Costa Rica discouraged
private activities in this sector. Law No. 1551 of May,
1953 adopted a more liberal policy toward private mining
exploration. The government now encourages the mining
industry by permitting duty-free importation of machinery,
tools and other equipment. The second law concerns that
development of industries in Costa Rica.

The Industrial Encouragement Law of September 1959 pro-
vides 99 per cent customs tax exemption on imports of con—
struction materials, capital equipment and machinery, fuels
and lubricants, raw materials and semi-manufactured products
required for the establishment of new industries.1 New
industries are exempted from land taxes for five years and
enjoy a 100 per cent exemption from any government tax for
the first half of the period granted for the enjoyment of
the benefits of this law (determined by the Ministry of

Industry) and 50 per cent tax exemption during the second

 

1"Industrial Encouragement Law” published in La Gaceta
(official newspaper) September 9, 1959. New industries are
considered those which manufacture products not produced in
Costa Rica or produced in quantities amounting to less than
10 per cent national consumption (article 16).

108

half of the period. A tax equal to triple the tariff rate
is established on the importation of foreign merchandise
similar to that produced nationally. Merchandise produced
by new industries is exempt of export taxes. ”Established
industries" may also enjoy a number of the benefits of this
law according to provisions pertaining to this category.
More than 150 applications for benefits under the Industrial
Encouragement Lawl had been made by 1950.

This policy decision of import substitution is an exam—
ple of a country following the prescription set forth by
Prebisch and Singer. The Prebisch—Singer import substitu-
tion policies have been discussed in Chapter I.

The third important law enacting policy dealing speci—
fically with economic development was the Economic Develop—
ment Law of November 1959.2 This law which provides 170.1
million colones for the economic development of Costa Rica
was financed by bonds of the Refund of the Internal Debt

. 3
and bonds of the National Banking System. Among other

1U.S. Department of Commerce, World Trade Information
Service, Economic Developments in Costa Rica, 1960 (Eco—
nomic Reports, part 2, No. 61-19, 1961), 3.

2 . cit., Memoria Anual de 1959, 357-382.

3These bonds bear an interest rate of 7 per cent per

109

TABLE 4.1

COSTA RICA, GOVERNMENT BUDGET FISCAL YEAR 1959 (ORDINARY
AND EXTRAORDINARY), MILLION OF COLONES

J f
f

 

Amount Percentage

 

 

 

 

 

 

 

 

Legislative Power . . . . . . 3,7 .1
Presidencyiof the Republic . . 1,1 0.3
Ministries of Government
Agriculture and Industry 6,2 1.8
Economics and Revenue . . . . . 18,2 5.2
Public Education . . . . . . . . . 71,0 20.2
Government, Police, Justice & Grace 18,4 5.2
Public Works . . . . . . . 40.3 11.4
Foreign Relations . . . . . . . 3,7 1.0
Public Health . . . . . . . . . . 8,4 2.4
Public Security . . . . . . . . . 13,3 3.8
Labor and Social Welfare . . . . . 1,7 0.5
Total Executive Power . . . . 182,3 51.8
Judicial Power . . . . . . . . 13,5 3.8
Supreme Tribunal of Elections . 2,0 0.6
Pensions and Retirement . . 14,0 4.0
Subventions . . . . . . . . 77,0 21.9
Internation Organ. Quotas . . 1,7 0.5
Outstanding Payments . . . . . . . 0,0 0.0
"Prestaciones Legales" and other
additional payments . . . . . 14,8 4.2
Verdicts and Sentences . . . . 0,2 0.0
Pensions, SubventionsLietc. 107,7 30.6
Service of External debt . . . . 17,5 5.0
Service of Internal debt . . . . . 24,9 7.1
Financial Transactions . . . . . . 0,0 0.0
Total Service of Public Debt . 42,4 12.1
Total Government Budget . . . . . . . 351.6 100 0

 

 

 

 

Source: Banco Central de Costa Rica, Memoria Anual de
lggg, San José, 1960, p. 115.

110

provisions made by this law, 35.0 million colones are to
be invested in road construction in agricultural regions;
80.0 million colones were given to the banking system to
increase their credit funds (including expansion of the
Agricultural Credit System1 and provisions are made to
organize separate Industrial Credit Departments in three
commercial banks. The National Production Council2 re-
ceived 3.7 million colones for the purchase of agricul-
tural machinery to be rented to agricultural producers, to
expand refrigeration facilities and to stabilize the price
of brown sugar for consumption. The University of Costa
Rica received 1 1/4 million colones to expand its research

programs on the production of basic foodstuffs.

Problems of Measurement of Economic Growth
The over-all goal of economic development can be said
to be the maximization of the rate of expansion of pro-

duction over time. In this sense, the process of growth

year and like all bonds of these two series, are exempt
of any municipal or national taxes, present or future, on
the principal or on the interest accrued.

1The Agricultural Credit System is analyzed in Chapter
VI.

2
See Chapter VI.

111

is essentially quantitative. Furthermore, economic de—
velopment implies certain types of changes covering
numerous phases which must be studied in the aggregate as
well as for the components of the required structural
shifts or changes. It would be an impossible task to
attempt to estimate the quantitative aspects of economic
growth for the thousands of economic units in a nation.
It is for this reason that the reduction of these quanti-
tative aspects to some single value measurements is
inescapable.

Some single value measurements repeatedly used by
economists as gauges of economic performance are National
Income Accounts. Records of national product (or income)
and its components are an indispensable tool for the study
of the general characteristics of the development of a
country or region. For many underdeveloped countries
records of national product are helpful in planning and
policy making.

The most frequently used measures of economic perform—
ance using National Income Accounts are: National Product,
National Income and Domestic Product. Each one of these

three gauges of output can be estimated in gross terms if

112

they do not include the capital goods consumed in the pro-
duction process. The inclusion of capital consumption
allowance will yield the net figures in either one of the
accounts considered.

Gross national product represents the market value of
the output of a nation while national income denotes the
allocation of income originating from that output. Gross
national product refers to the productive contribution of
individuals residing in a given country, together with the
productive contribution of any property owned by such
residents, whether this property is located at home or
abroad. In other words, the boundary of gross national
product is defined in terms of the nationals of a country
and their property rather than in terms of geography.

Gross domestic product measures the production occurring
within a given geographical area irrespective of whether
the productive resources in question are owned by nationals
of that area or not. It also excludes any foreign property
that is held by nationals of the country in question. Thus,
gross domestic product measures the productive activity
taking place within a geographical area whereas gross

national product refers to the productive activity of a

113

specific group of individuals (nationals) and their pro—
perty. Aside from this difference in coverage, gross
national product and gross domestic product are equivalent
concepts. Both measures have difficulty in handling the
problem of defining intermediate goods and services treat—
ment of non-market output and treatment of transfer
payments.

Gross domestic product may be larger than gross national
product if one or more of the main sources of productive
activity and the resources involved, are owned and operated
by nationals of other countries. Conversely, gross domestic
product will be smaller than gross national product if the
nationals of the country have large foreign investments so
that the country's net property income from abroad may be
substantial.

The three national income estimates mentioned above
are usually expressed in terms of market prices. However,
an alternative method of valuation production is to value
national output in terms of what it costs in terms of fac—
tors of production. Any national income aggregate expressed

in "factor cost," excludes any indirect tax paid by business

to the government since such taxes do not fall on any

114

specific factor of production. For the same reason, busi-
nesstransfer payments and current surplus of government
enterprises are not included, on grounds that they are not
payments to the factors of production.

Taxescxiany factor of production, such as corporate
profit tax, social insurance contributions, as well as
subsidies are part of the factor cost to producers. Fac-
tor cost valuation is not really an independent method of
valuation showing the cost necessary to obtain the services
of factors but rather it is an adjustment of market value
to show the proportion thereof that the factors receive.

Given the importance of national income estimates in
judging economic conditions and their use in economic
planning and economic policy, the limitations and short—
comings of these estimates should be kept in mind. The
use of national income accounts presents two problems:
first, conceptual and statistical problems which are in—
herent to the actual measurements themselves; second, the

failure to reflect non-economic changes.

 

lRichard Ruggles and Nancy D. Ruggles, National Income
Accounts and Income Analysis (New York: McGraw-Hill Book
Company, Inc., 1956), 117.

115

Conceptual and Statistical Problems

The first conceptual problem stems from the definition
of intermediate goods and services. In summing the market
value of goods and services produced by an economic com—
plex, it is necessary to exclude the intermediate goods
and services that enter in the production of other goods
and services. In other words, any transaction which repre-
sents a purchase by a productive unit from other productive
units on current account, should be omitted from the total
market value of national output. In many instances, it is
difficult to distinguish between intermediate and final
goods and services. Some items may appear as an expense in
the ledger of a firm, in economic terms, may not represent
the use of material or other goods used in current output
or increase in inventories. In addition to the conceptual
problem of separating current expenditures from capital
expenditures, a further problem arises from the fact that
many outlays that firms can treat as current expense for
taxation purposes, are in reality capital formation.

Another problem involves distinguishing between inter-
mediate and final goods and services provided by the

government. Government services can be considered as final

116

goods given to the economy or as intermediate services
given to all economic units of a nation. Since most
government services are provided free of charge,1 it is
debatable whether they should be included in the total
output of a nation. They should be included if govern-
ment services are considered as services consumed by pro—
ducers in their production process or if the market price
of goods requiring those services would rise should
business be called upon to pay directly for such services.
However, government services should not be included in the
total value of the output of a nation if one maintains
that business does pay for those services indirectly
through taxes (i.e., gasoline taxes, corporation taxes,
etc.). Again, this is a conceptual problem inherent to
national income accounts.

In national income accounting, all consumers’ expen-
ditures are considered as outlays for final products. This
procedure is to some extent arbitrary and not very accurate

since it is based on the assumption that individuals do not

 

l . . . . .

These serVices may include roads, information serVices,
conservation or agricultural extension services, public
health and facilities, etc.

117

have expenses that can be classified as purchases of inter—

mediate goods and services.

Another conceptual problem is presented by the omission

of unilateral transfers from the computation of national

income accounts. These unilateral transfers or payments

are mainly constituted by gifts of one individual to another

and government transfer payments such as bonuses, relief

payments,pensions, etc. The former are omitted from na-

tional income estimates on grounds that they do not refer

to any particular production, the latter on grounds that

they are means of income redistribution rather than income

arising from any particular production.

Finally, statistical problems arise from the exclusion

of non-market production from national income figures.
This non-market production refers to rent "not paid" by

home owners residing in their own homes, home-made goods

and services for household consumption, domestic servants

obtaining free room and board in payment for their services

and farm produce consumed at the farm. The omission of non-

market production from national product estimates represents

a major statistical problem. This is particularly true in

underdeveloped countries where the extent of their market

or monetary economy is limited.

118

This discussion brings us to the second major limita—

tion of national income accounts and their use in under-

developed countries.

Failure To Reflect Non-economic Changes

It has been stated that economic development can be

conceived as the maximization of the rate of expansion of

production over time. In order to maximize the rate of

production in underdeveloped countries, a number of social,

political and institutional changes may be required.

National income aggregates fail to reflect, to any great

extent, such changes. The ultimate goal of economic de—

velopment is to improve the standard of living of the
population through increased output and productivity.

However, the standard of living of a community is as a

rule affected by much more than the mere flow of goods and

services. Non-economic forces such as political, social,

religious and cultural considerations, influence the level

of well-being achieved by the members of a society. Not

only do there exist significant divergences in the socio—

cultural environment of different countries relative to

their income levels, but also the actual increment in total

output of a country may entail radical changes in the

119

institutional and socio-cultural complex. Changes in
national income or output, are almost certain to be accom-
panied by changes in the distribution of income. Although
any rise in income represents a tacit improvement for a
given society, given the change in income distribution
which is likely to accompany the increase in income the
economic situation may be worse than before. Therefore, to
equate differences in the level and/or structure of aggre-
gate output with variations in community welfare and levels
of economic development, is rather hazardous and arbitrary.
National income records are relatively scarce in under-
developed nations, and largely unavailable for the study of
long period trends. One author contends that the relative
scarcity of national income data in underdeveloped countries
can be attributed to two factors: first, that the social
and economic life does not produce statistics in the course
Of everyday life, and second, that poorer countries have
no resources to spare for the collection and analysis of
data which in the short-run, satisfy less pressing needs

than food and other necessities of the population.

 

lSimon Kuznets, "Problems in Comparisons of Economic
Trends," Economic Growth, Brazil, India, Japan, Simon
Kuznets, Wilbert E. Moore and Joseph J. Spengler (eds.),
(Durham, N.C.: Duke University Press, 1955), 9.

120

In the preceeding pages, some of the contributions and
shortcomings of the use of national income estimates for
the measurement of economic growth have been discussed. The
following quotation offers a good summary of this discussion.
. . . long-term records of national product and its
components are indispensable for the study of the general
characteristics of economic growth of nations can hardly
be gainsaid. Indeed, the major difficulty is not in the
defects of the national product measures, but in their
scarcity . . . . Provided that we recognize the assump—
tions and the difficulties, much can be learned.1
Costa Rica National Income Data
National income data for the Costa Rican economy were
not available until 1956; the estimates go back as far as
1950.2 These statistics are reproduced in Table 4.2. The
gross national product rose from 1,298 million in 1950 to
2,530 million colones in 1959. All three main aggregates,
national income, national product or domestic product, showed

almost a twofold increase during the period considered. The

Ber capita national income in current prices rose from 250

 

 

1Simon Kuznets, "Some Conceptual Problems of Measure-
ment," Economic Development and Cultural Change, Vol. IV,
NO. 4 (October, 1956), 7.

2Banco Central de Costa Rica, Inqreso y Producto
Nacionales de Costa Rica, 1950 (San Jose, 1956).

121

dollars in 1950 to 332 dollars in 1959.1

Table 4.3 shows the gross domestic product by economic
sectors for the 1950 to 1959 period. Table 4.4 shows the
per cent contribution of the major economic sectors to the
gross domestic product in 1950 and 1959.

Agriculture, manufacturing and mining and services con-
tributed 54.6, 11.4 and 11.8 per cent respectively to the
gross domestic product in 1950. These three major sectors
employed 54.7, 11.2 and 14.7 per cent respectively of the
economically active population in 1950.2

In 1959, agriculture accounted for 35.7 per cent of
the domestic product which represented a decrease of 9.85
Per cent from 1950. Government and government services and
state enterprises were the two sectors which showed the
greatest proportional increases in their contributions to
the domestic product.

National income figures are useful to show structural

economic changes over time. However, for purposes of

——L

Banco Central de Costa Rica, Departamento de Estudios
Economicos, Ingresopy Producto Nacionales de Costa Rica,
@1218 (San José, December, 1959), 7.

2
See Chapter III, Table III, 2, p. 14.

122

.H> Hmummgo sH pmoswoummu pew xcmm Hmuucmv on“ >9
cmusmeoo mesH wofium mammmaoaz map >9 Uwumammp coma m>mfl mueumflumum emote
m

.Aaoma .mumsuflmm

.meb smmv mmmalmmma .muwm muwoo mp mwamcoflomz ouoscoum > OmQHmsH .mooflfioc

loom moflpsumm mp oucmEmuHman .moflm mumou mp Hmnucwo OUCMm .wmlmm .Aomma .Hnow
3wzv mmma .mowumflumum mucsooo< Hmsofiumz mo xoonummw .mcoflumz pmuHsD "mousom

 

 

 

h.m®om m.mNNN o.mmmm 0.0mmm m.¢mma 0.00HN mmma
H.maom m.omHN m.m©NN 0.0mvm m.¢hma o.mNON mmma
H.0mma ¢.Hmom 5.0HHN N.hmmm ®.¢¢ha o.mmwa hmma
N.vvha N.®mma H.N®ma m.HNHN m.®m®a h.m®ha omma
b.00ha m.ommH m.¢mma h.Hmom N.mhma ©.mm©H mmma
h.mooa m.®hoa N.m®ha N.®¢ma b.0hva ©.mmmH fimma
¢.m©ma v.m©ma m.mm©H m.mmoa h.mmva h.mN¢H mmma
m.hhma @.mmfla ¢.omva o.@HmH 0.0mma O.©mNH Nmma
H.0NHH m.¢oma m.OHNH 0.0H¢H o.mm0H 0.0HNH HmmH
m.h©oa h.mONH m.m¢HH N.mmNH C.Nmm 0.0NHH omma
mmeHHm mmmuahm mmeHHm
mmma meHHm mmma mmoflum mmma mOUHHm
ucmumcou “COHHSU ucmumcoo DCOHHSU ucmeQOU DCOHHDU How?

pospoum Uflumwaon mmouw uospoum HMGOHumZ mmOHU mEOUCH Hmcoflumz mmouw

 

 

mmooHoo mo mCOHHHHz

mmmmauommfl .emoo moeoem em eonsomm
oHemmzoo mmomo oze eoooomm q<one<z mmomo .mzoozH qeone<z mmomo neon memoo

N.V mqm¢8

123

.Aaoma

.WmOb ammv mmmalmmma

 

 

.moflm mumoo mp mmamsoflomz ouospoum > OnonmsH

 

 

 

 

.mooHEocoom mOHpsumm mo ounmEmuHmmwQ .moflm mumou on Hmnucwu oucwm .Nm .Ammma
"xnow 302v mmma .moflumflumum DGDOUU¢ Hmcoflumz mo xoonumww .mcoflumz UmuHaD "mousom
m.mmmm mdmam «Amom ~6me m.mom._n momma Emoma Emmi“ méOmH fimoma Dosponm Uflumwfiom wmouw
¢.omH ©.mmH m.mma m.mmH v.5HH h.mm m.m> H.Hh m.m® m.H© mmmflumumucm mumum
m.mbm H.0mm m.m¢m H.Hmm ¢.oam N.mma o.vma m.0ha 5.0ma o.m¢H mmUH>Hom
H.Hmm m.mmm m.mom m.¢ma N.mma o.mma H.hHH o.mm m.mm h.Hm mCOHuouHumcH
DGwEGHw>ow w ucmficum>ow
m.moa m.Hoa N.mm v.mm o.mm C.Nm 0.5» m.ah m.mm m.¢m mmcflaamza mo QflSmeczo
m.mam h.hma o.¢ma ¢.mma N.¢ma H.N¢H m.vma H.mNH N.maa m.ooa GUMHB Hfimumm.wmammmaonz
H.0m m.mn N.vh m.m® v.mo ¢.mm m.mm 0.0m m.m¢ H.H¢ :oflumoflcofifiou w
wmmuoum .coflumuuommcmue
m.mh m.ah H.nm mamm m.hm m.mm 0.0m H.0v H.N¢ m.mm coauosnumcoo
v.00m m.vvm m.mmm H.0NN H.Hom m.oma m.mha N.N©H m.mvH m.hma mcflcflz w mcflusuommscmz
o.mmb H.Hmm m.mmh H.N0h m.omb m.mmh m.mmm N.N¢® m.mmm m.mvm whsuasofiumfi
mmma mmma nmma mmma mmma emaa mmmH_ mmma Hmmai ommH, muouomm

 

 

 

 

 

 

 

 

 

 

Jl

 

mmmdlommd WMOBUmm UHZOZOUH Mm BUDQOMm OHBmmZOQ mmomw

umoo Houomm usmnuso um mmcofloo mo maoflaaflz

m.v mqm<8

«<0Hm <EmOU

124

TABLE 4.4

PERCENTAGE CONTRIBUTION OF MAJOR SECTORS TO THE GROSS
DOMESTIC PRODUCT OF COSTA RICA, 1950-1959

 

 

 

Sector 1950 1959 ::::::t
Agriculture 45.60 35.75 -9.85
Manufacturing & Mining 11.43 11.71 .28
Construction 3.26 3.40 .14
Transportation, Storage &

Communications 3.41 4.05 .64
Wholesale and Retail Trade 8 86 9.60 74
Ownership of Dwellings 4.54 4.70 .16
Government and Government

Institutions 5.94 11.29 5.35
Services 11.86 12.41 .55

5.08 7.03 1.95

State Enterprises

 

analysis and planning, macroeconomic statistics have limited

value per se. For this purpose, the important issue is the

rate of growth. The following pages will present a descrip-

tion and evaluation of the methods currently used to compute

growth rates.

125

Some Measures of the Rate of Growth
in Costa Rica: 1950-1959

The goal of economic development is the maximization
of the rate of expansion of production over time. The
measurement of the rate of economic growth is of vital
importance to many nations. In view of this, and the
frequent use of rates of growth by economists and policy
makers, Professor Boris P. Pesek has explored and com—
mented on the methods that are in use for the calculation
of this rate of economic growth.1 In addition, he pro-
poses a new method which rests on a more meaningful set

of algebraic restraints and which more accurately repro—

duces the flow of actual output during the period covered.
. . 2
Description of the Methods

Method I

The simplest and most widely used formula to measure

economic growth is based on the geometric average of the

ratios of output during successive time periods. The

lBoris P. Pesek, "Economic Growth and Its Measurement,"
Eponomic Development and Cultural Change, April, 1961, 295-

315.
21 am indebted to Professor Boris Pesek for his personal

cooperation and help in the description and mechanics of the
application of the techniques to measure the rates of growth

in Costa Rica.

126

formula can be algebraically expressed as follows:

,Pn
G1 I n—l P1 1 X 100

Where G1 is the rate of growth, n is the number of years

considered, P is the output in periods 1,2,3, By this

method we can calculate the rate of growth which if com—

pounded annually over a given period yields the terminal

increase in the variable analyzed. The main disadvantage

of this method is that it is influenced by cyclical fluc-

tuations in the output stream.

Method II

Method II or G2 is simply the calculation of the arith-

metic mean of the annual rates of growth.

Pt
t 1 Pt-l
- 1 x 100
n—l

H has

 

Pesek illustrates the serious shortcomings of this

method by giving the following example. First, consider

an output series of 100, 90, 99. The output decreases and

then increases by ten per cent. Consequently, the rate
Of growth will be shown to be zero despite the fact that

Output decreased and increased again relative to period

127

two. An extension of the above series could drive output
to zero and the calculated rate of growth would never show

a negative growth.

Method III

This formula is simply the calculation of the geometric
mean of percentage changes. If one of the factors is equal
to zero or if some of the factors have negative signs, this
method fails to give useful results. In other words, if
there is no growth in output from one year to the next, or
if there is an actual decrease in output from one period to
the next one, this method, being the geometrical means of
percentage changes, would show a zero rate of growth in the
first case and a negative growth in the second case. There—

fore, this method is not of any practical use.

Method IV

Both methods IV and V fit exponential growth curves of
the type Y = abt to the values observed during the period
analyzed.

Method IV utlizes the least squares method to calculate

the rate of growth. However, since it is not possible to

 

lIbid., p. 300.

128

fit an exponential curve directly to the actual values of
the variable in consideration by the use of the least
squares method, the curve has to be fitted to the logarithms
of the observed values of the variable. Formula IV can be

expressed as:

 

. . P
in which e t and al

are calculated by the least squares
method,; which provides for the sum of the logarithms of

the actually observed values to be made equal to the sum of
the logarithms of the estimated valuescflfoutput; in other
words, this technique makes the product of the actual out—
puts equal to the product of the estimated output. This
method, although found by Pesek to be in considerable agree-
ment with the standard method VII, as far as performance is
concerned, fails to achieve the more meaningful economic
requirement that the sum of the actual outputs be equal to

the sum of the estimated outputs.

The technique of calculation can be found in any
statistical textbook, e.g., F. E. Croxton, D. J. Cowden,
Applied General Statistics (2nd ed.; Englewood Cliffs, New
Jersey: Prentice-Hall, Inc., 1956), 293.

129

Method V
, , , , 1
To eliminate this shortcoming, James W. Glover developed
another technique to fit an exponential growth curve to

serial data. His technique is:

 

G = t - l x 100

where eP t and the a" are calculated to satisfy the require-
ment that the sum of the actual values of output is made
equal to the sum of the estimated values of output; in
addition, the sum of the products of the actual values of
output and the measure of time is made equal to the sum of
the products of the estimated values of output and the meas-
ure of time. This technique has the advantage of meeting
the requirement that the output produced during the period
analyzed is made equal to the sum of the estimated outputs;
this quality is not shown by any of the methods previously
discussed.

The main disadvantage of this method is the arbitrary

. 2
selection of weights. As stated above, method V requires

 

l . . .
James W. Glover, Tables of Applied Mathematics in Fi-
nance, Insurance, Statistics (Ann Arbor: 1923), 468.

2See Appendix 1, p. 20.

130

that the sum of the products of actual outputs and the set
of weights (0, 1, 2, 3, . . . n) be equal to the sum of the
estimated outputs and the same set of arbitrary weights
cannot be given any economic interpretation. As Pesek
comments: "Indeed, if we claim that the year 3 is twice

as important as year 2 (weights 2 and 1 respectively), con-
sistency would require that year 4 be considered twice as
important as year 3; another set of weights 1, 2, 4, 8,...n

would seem at least equally defensible."

Method VI
For all practical purposes, method VI can be expressed

and calculated by the following formula:

where X can be found in the body of a table showing the
amount of 1 Per Annum at Compound Interest (Sn i) in
period n; the rate of interest shown by the table for the
known X and n is the rate of growth under method VI or G .

This method has the advantage not shared by any method

1Ibid., p. 303.

131

except method V, that it ensures that the sum of actual
outputs during the period will be equal to the sum of the
estimated outputs during the period. Furthermore, it does
not suffer from the weighting procedure which burdens all
other methods except method V. Method V is extremely easy
to calculate. However, the selection of the base period
is arbitrary. This feature is also shared by method I;
nevertheless, this method, in contrast to G , reflects the

1
pattern of output during the period analyzed.

Method VII

Pesek submits a seventh method for the calculation of
growth rates which, in his opinion, is superior to any one
of the previously described methods. Method VII simul-
taneously selects a growth rate and a fictitious base year
quantity such that the sum of the actual outputs during the
period be equal to the sum of the estimated outputs for the
same period and that the sum of the squared absolute devi—
ations between the actual outputs in the various periods

and the estimated outputs for the same periods be minimized.

 

= or G = (b-l) X 100.

132

The advantages of this method are substantial. First,
the total production during the period is reflected; only
G5 and G6 share this feature. Secondly, the rate which one
obtains by the application of this method is neither deter—
mined by the initial and final values of the time series
analyzed (as in G1) nor is the rate of growth influenced
more by the initial value in the series analyzed than it is
by any other value (as in G6). The case for the minimiza-
tion of the squares of the deviations is, according to
Pesek, stronger than the set of arbitrary weights employed
by the method yielding G5. The main disadvantage of this
method is that it requires a fairly substantial computa—

tional effort. Most underdeveloped nations do not have the

computer facilities to use method VII.

Performance of the Methods

Pesek used the United States' gross national product
from 1929 to 1959, including three subperiods to compare
the relative performance of the methods analyzed with
method VII. He concluded that methods I, III, and IV lead
to less satisfactory results than methods V, VI and VII in
estimating the total output of the economy in all cases

analyzed. Furthermore, methods I and 11 show extreme

133

sensitivity to economic fluctuations caused by the addi-
tion or subtraction of one year from the group of seven
other years analyzed in the subperiods. Methods V and VII
are superior in performance to all the other methods.

In addition, Pesek compared the performance of all
seven methods by the estimation of rates of growth over a
long period of time. He concluded that method VI misses
by substantial margins the standard represented by method
VII. The reason for this is undoubtedly the excessive
dependence of this method upon the arbitrary selection of
the base year. Method I could be expected to yield results
which are highly comparable to the ones yielded by method
VII because the long time period eliminates the effects of
cyclical fluctuations. Pesek found that, in some instances,
method I yielded results which are in reasonable proximity
with the ones yielded by method VII but in other cases the
errors were very substantial. Method V shows, for the first
time, considerable discrepancies with the results yielded by
method VII. For long-run computations, method V persistently
overestimates the rate of growth. This, of course, can be
expected since the more recent years, containing higher
absolute increases in output, receive a more than propor-

tional share of the total weights.

134

As an over—all conclusion method VII is the most accu-
rate method of measurement whether considering long run or
short run time series data. Method V is an accurate method
for data covering short or intermediate run periods (not
over 35 years); however, it fails to yield accurate
results for long run data. The advantage of method V over
method VII is the ease of calculation of the former over the
latter method.

Let us turn to the measurement of the rates of growth
of the Costa Rican economy. In the first part of the anal-
ysis, six different formulas were used to compute the growth
rates of the Costa Rican gross national product, gross
national income and gross domestic product in the aggregate
and economic sectors. It was found that the six rates of
growth are in considerable agreement with the results of
Pesek's "standard" method VII. Method I shows an average
variation of 2.59 per cent from the results yielded by our
"standard"; method II 2.01 per cent; method IV 2.99 per
cent; method V 0.84 per cent, and method VI 8.35 per cent.
This suggests that method V gives results which are superior
to the ones given by the other methods, except our "stand-

ard." In addition, method V shows the least range of

135

variations in the results yielded, when considering all

economic sectors plus the three main aggregates. However,

method I yielded closer results to our standard than method

V when considering national product, national income and

domestic product only.

TABLE 4.5

ANNUAL RATES OF GROWTH OF THE COSTA RICAN ECONOMY;
GROSS NATIONAL PRODUCT AND INCOME, GROSS DOMESTIC PRODUCT
BY ECONOMIC SECTORS, USING SIX DIFFERENT
COMPUTATIONAL METHODS, 1950-59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G1 G2 GA. G5 G6 G7

Gross national product 7.79 7.72 7.99 7.84 8.42 7.76
Gross national income 7.23 7.21 7.45 7.34 7.80 7.28
Gross domestic product

(total) 7.04 7.00 7.20 7.05 7.85 6.98

Agriculture 4.18 4.40 4.39 4.28 5.64 4.21

Manufacturing & mining 7.73 7.28 7.41 7.33 7.72 7.28

Construction 7.54 7.51 7.71 7.66 7.84 7.62

Transportation,storage

and communication 9.12 9.08 8.59 8.57 9.10 8.57

Wholesale,retail trade 7.99 7.93 8.00 8.04 7.93 8.05

Ownership of dwellings 7.44 7.44 8.15 7.88 8.60 7.73

Government & govern-

ment institutions 145M 14.94 15.27 14.58 16.14 14.46

Services 7.57 7.53 7.50 7.43 7.96 7.39

State Enterprises 1L00 11.57 12.34 11.41 11.86 Pl.53

 

 

 

136

On the basis of this analysis, we can conclude that
method V is the best method to use in underdeveloped coun—
tries to calculate short-term rates of growth.

The rates of growth of the Costa Rican economy are
shown in Table 4.5. All rates shown in this table are
based on current prices. During the 1950—1959 period, the
national product of Costa Rica increased at an annual rate
of 7.84 per cent; national income and gross domestic pro-
duct at rates of 7.34 and 7.05 per cent respectively. When
the rates of growth were computed for the same aggregates
at constant prices, no major differences were found; annual
rates of growth of 8.00, 7.53 and 7.06 per cent were
experienced by national product, national income and domes-
tic product respectively. The sectoral analysis of the
gross domestic product of Costa Rica for the 1950-1959
period shows that Government, government institutions and
State enterprises are the two most rapidly expanding sectors;
they have experienced annual ratesof growth of 14.58 and
11.41 per cent respectively. The manufacturing sector grew
at the rate of 7.33 per cent per annum during the period
considered. Agriculture's growth rate of 4.28 per cent was

the slowest of all sectors. Non-agricultural sectors

137

expanded at a rate twice as fast as the agricultural sector.
Since the rate of population growth for Costa Rica during
1950 to 1959 reached 3.87 per cent annually, and the na-
tional income (at constant prices) during the same period
experienced a rate of growth of 7.53 per cent, the actual
increase in per capita income amounts to 3.66 per cent per

year.

Summary

The economic history of Costa Rica in the 1930's and
1940's was marked by extreme difficulties in maintaining
external balance. Foreign exchange difficulties have been
frequent; import controls have been exercised since the
1930's. Internal economic problems have been marked by
lagging production of domestic foodstuffs; retail and whole-
sale price controls on staple commodities were introduced
in 1937. These controls have remained in force for the
past twenty-five years.

During the 1950-1959 period, considerable efforts were
made to use fiscal and monetary policy to speed-up economic
development. Moreover, three important laws were enacted
in 1959 to encourage investment and development of mining

and import industries. Hence Costa Rica, like several

138

other Latin American countries, is placing increasing
emphasis on import substitution.

Some of the important limitations of national income
(or product) estimates were elaborated in this chapter.
Costa Rica started using modern economic statistical
aggregates in 1956. Six different methods of computing
annual rates of growth were discussed and used to compute
the rate of growth of the Costa Rican economy from 1950
to 1959. Despite a rate of population growth 3.87 per
cent per year, the per capita income in constant prices
increased 3.66 per cent per year from 1950—1959. Per
capita income rose from 250 dollars in 1950 to 332 dollars
in 1959. Gross national product doubled during the same
period.

The annual rate of increase during the 1950-1959 period
of the gross national income, gross national product and
gross domestic product of Costa Rica at constant prices has
been 7.53, 8.00, and 7.06 per cent respectively. The
Government and State enterprises are growing at rates of
14.58 and 11.41 per cent respectively. Manufacturing ex—
perienced a rate of growth of 7.53 per cent per year. The
annual rate of growth of the agricultural sector-—4.28 per

cent-ewas the smallest of the sectors.

CHAPTER V

THE PERFORMANCE OF COSTA RICAN AGRICULTURE:

1950-1959

The purpose of this chapter is to explore some of the
characteristics of Costa Rican agriculture such as: main
agricultural regions, shifts in land use, and changes in
agricultural output during the 1950—1959 period.

Costa Rica has approximately 50,900 square kilometers
(23,000 square miles) of land. Volcanic activity has been
an important element in the formation of the Costa Rican
territory and the topography of the country is irregular.
Mountains and plateaus cover a considerable proportion of
the national territory. Two mountain ranges cross the
country lengthwise through the central part: the Volcanic
Mountain Range in the north and the Talamanca Mountain
Range in the south. This last range contains the highest
altitude in Costa Rica, the Chirripo Grande which stands
at 12,572 feet above sea level. The presence of these
ranges divides the country into three physiographical zones:
North, Central and South. The same two mountain ranges

together with the predominant northeasterly winds divide

139

140

Costa Rica's climate into three principal groups: the humid
tropical zone in the Atlantic; the Central part with mild
climate and the Pacific zone of tropical climate but with
well defined dry and rainy seasons.

From a hydrological point of view, Costa Rica is well
endowed. The mountain complex mentioned above divides the
water resources into the Pacific and the Atlantic water-
sheds. The hydroelectric potential is probably the coun-
try's most valuable resource.1 In general, Costa Rica has
fertile soils with good agricultural potentialities.

Main Agricultural Regions and
Their Characteristics

There are six major agricultural regions in Costa Rica.
The coffee, sugar cane and dairy regions are found in the
Central part of the country where the climate is mild and

the soils are of recent volcanic origin.

 

l . . . . .

Tulia Quiros, "Breve Resena Geografica e Historica de
Costa Rica," Atlas Estadistico de Costa Rica (San José:
Direccion General de Estadistica y Censo, 1954), 24.

2For a more detailed account see: W. A. Peterson,
"Regiones Agricolas de Costa Rica," Atlas Estadistico de
Costa Rica (San José: Direccion General de Estadistica y
Censo, 1954), 74.

 

141

Coffee Region

The most important coffee region is located along the
Central Plateau from Tres Rios to San Ramon. This region
is characterized by subtropical climate with a definite dry
and rainy season. The soils are of recent volcanic origin.
The altitude varies between 800 and 1400 meters. Coffee
is produced under intensive methods. Two coffee sub-
regions are located on the southern and eastern part of the
plateau. Sugar cane is produced as a complementary crop to

coffee in this sub-region.

Sugar Cane Region

This region is located on the western and eastern ends
of the Central Plateau respectively. Coffee production is
also very important in this region; in many cases, sugar
cane also is a complementary crop to coffee. Although
ecological conditions do not suggest that this region is
best suited for the production of sugar cane, transporta-
tion facilities and proximity to the main consumption cen—

ters have greatly determined its present use.

142

Dairy Region

The dairy region begins in the Central Plateau where
the coffee region tapers off at altitudes above 1400 meters.
The climate of this region is mild and has moderate rainfall.
Soils are of volcanic origin with very high fertility. A
dairy sub—region is found in the southern part of the Cen-
tral Plateau. Dairy production is carried out on an exten-
sive basis and in competition with coffee and timber.

The next three regions--Cereal Grain, Beef Cattle, and

Cocoa and Banana-—are located along the Atlantic and Pacific

plains.

Cereal Grain Region

The cereal grain region is located in the low plains of
the Pacific Coast. Prior to the wide cultivation of cereals
in this region, cattle production was the predominant activ-
ity, but with improvements in transportation facilities,
livestock production is now carried out as a secondary enter-

prise along with the production of cereal grains.

Beef Cattle Region
This region is located on the northern side of the

Pacific Coast in the Province of Guanacaste. The climate

143

is dry and warm. Beef breeding cattle are grazed on the
plains. A less important cattle region is found on the
Atlantic plains. The humidity and the high level of rain-
fall Of the Atlantic region make it ideal for the fatten-
ing of cattle since it yields green pastures all year.
Cereal grain production in this Atlantic region is also

an important activity.

Cocoa and Banana Regions

The banana and cocoa region lies along the southern
Pacific Coast of Costa Rica, as well as along the Atlantic
Coast. The ecological characteristics of these two regions
are fundamentally the same except for the presence of a
definite dry season in the Pacific Coast. Their accessi—
bility to international trade, along with their favorable
climatic and soil conditions enable these regions to

specialize in the production of commodities grown primarily

for export.

Land Tenancy in Costa Rica
The social and economic benefit of the use of land
depends to a great extent on the status of the agricultural

producer. Although Costa Rica has a high proportion of its

144

.xmmea

 

smmv omma mo oflumsUOQOHmfl Omswo

.mmnom h.H mamsvm mcmucwa mcom

 

.WmOb cmmv mmma mp OHHmsommonm< Omcmo “m

.Ammma .meB

 

 

.OmeU % MUHHmHmvwvmm TU HMHOQOU COHUUOHHQ "OUHSOW
o.mI o.o o.H~ H.o 6.6m H.o Hm>o w oomm
m.ou H.0I o.w m.o m.m m.o mmvm I coma
6.0+ o.o e.v N.o H.¢ m.o mmwa I oooa
m.o+ o.o m.m m.o h.m m.o mam I oom
©.H+ o.o m.ma N.m m.¢a m.m. 00¢ I mha
m.a+ m.o+ v.0H h.¢ H.m ¢.w eha I OOH
m.o+ m.ou m.ma e.oa m.aa m.oa mm I om
m.o+ o.o e.aa m.om m.oa m.om me I cm
m.o+ m.OI ©.m m.va ¢.m N.mH ma I OH
H.o+ N.o+ m.H ©.mH m.H m.®a m I m
N.o+ m.o+ m.H m.mm H.H m.nm w swap mmmq
mfiumm mo
HwQESZ mmomno coma mEHmm pawn mEHmm
CH wmcmgo DHMW DWMMmHWM powwoumm umwwmuwm powwonmm mmmcmucmz
Demo Mom Ge mNHm
mmemno mmmauomma mmma omme

 

 

mzmfim m0 mmmSDZ QZG WNHm .¢UHM fiBmOU
H.m mqm¢8

145

agricultural land owned legally by its producers, there

is not an egalitarian distribution of land ownership.
Table 5.1 shows, for example, that in 1955 a total of 28.8
per cent of the farms were less than five manzanas (8.5
acres) in size. These 13,633 farms comprise only 1.9 per
cent of all farm land. On the other hand, 0.1 per cent of
the farms were over 3500 manzanas (5950 acres) in size.
The fifty farms in this category comprise 21.1 per cent

of all farm land.

Table 5.2 shows that in 1955, 75.5 per cent of the
farms and 81.1 per cent of the farm land was owned by pro—
ducers; 1.4 per cent of the farms were rented and 16 per
cent were in other forms of ownership. The category "other
forms" includes land given free for cultivation, squatters
and colonos. Colonos are farmers which have been granted
land by the State to form agricultural settlements supported
and organized under a National Law. The State assumes the
responsibility for the settlement and in some cases may
even direct its activities. Although 75.5 per cent of the
farms and 81.1 per cent of the farm land is owned by agri—
cultural producers, all tOgether, the land on farms

exploited by the legal owner covers 88.9 per cent of the

146

total agricultural area of Costa Rica.

Comparing the figures in Table 5.2 for 1950 and 1955,
it can be seen that there has been a decrease of 5.6 per
cent and 8.6 per cent in the number of farms owned by pro—
ducers and in the percentage of total farm area respectively
over the 1950 Census. "Other forms" of land tenancy showed
an increase in 1955 of 10.6 per cent in the number of farms
and also an increase of 3.9 per cent in the percentage of

farm land.

Size and Number of Farms2
Table 5.3 shows that there has been an increase of 4,200
farm units and 56,111 manzanas of land over the 1950 census.
This represents an increase of 9.8 per cent and 2.2 per

cent in the number of farms and area under cultivation

 

lDireccion General de Estadistica y Censos, Censo Aqro—
peeuario de 1955 (San José, 1959), XVII.

2The Census defines a farm as "any extension of land
0f one manzana or more which is dedicated totally or par—
tially to agricultural or livestock production and where
the production activities are directed or administered di—
rectly by one person alone or with the help of others." A
farm could consist of one or more tracks of land, owned or
rented, as long as they were located within the same county
or nearby counties provided that the tracks of land belonged
to the same technical or economic unit. Direccion General
de Estadistica y Censo, Censo Agropecuario de 1955 (San
José, 1959), XII.

147

respectively. One-half of the farms are located in the
most heavily populated provinces of San José and Alajuela
in the Central Plateau of Costa Rica. Only four provinces
of the seven provinces of San José, Puntarenas and Limon
showed an increase in the number of farms as well as in
the area under cultivation. The other four provinces
showed a decrease in both. The province of Guanacaste
contains only 18 per cent of the farms while comprising
33.7 per cent of the total area of farm land. This fact
indicates a high degree of concentration of farm land and
therefore the presence of latifundia type of land tenancy.
The opposite phenomenon occurs in the Heredia Province
where 5.2 per cent of the farms and only 3.1 per cent of

the farm area is found. The presence of latifundio as well

 

as minifundio type of land holding is more clearly shown

 

by Table 5.2. The 1950 Census of Agriculture shows that
0.1 per cent of the farms (49 farms) contained 26.6 per
cent of the agricultural land; and in 1955, the same per-
centage of the number of farms (50 farms) comprised 21 per
cent of the total farm area, showing a decrease of 5.6 per
cent over the 1950 Census. On the other hand, Table 5.1

also shows that in 1955, 28.8 per cent of the total number

148

of farms had an extension of less than 4.9 manzanas; they
contained 1.3 per cent of the total agricultural land.
Farms of less than 10 manzanas (17 acres) accounted for
44 per cent of the farms and 3.8 per cent of the farm land.
According to the 1955 Census, 84 per cent of the pro-
ducers live on the farm. Of this, 84 per cent are resi-
dent producers, 81.6 per cent are owner—operators and 2.4
per cent manager-operators. Of the 16 per cent non—farm
residents, 9.9 per cent are owners and 6.1 per cent are

managers.

Land Use in Costa Rica
The 1955 Census of Agriculture reported an area of

2,648,331 manzanas in farms. This figure represents 36.4
per cent of the national territory. Table 5.4 shows that
in 1955 the land used for the production of annual crops,
fallow land, and other crop land, comprises 401,663 man-
zanas which represents 15.2 per cent of the farm land in
Costa Rica. Most of the crops for internal consumption are
produced on this land. The second major land use group is

that made up of land in permanent crops such as coffee,

 

lIbid., XXI.

149

TABLE 5.2

COSTA RICA: LAND DISTRIBUTION BY PERCENTAGE
OF FARMS AND PERCENTAGE OF TOTAL FARM AREA

 

 

 

 

 

 

T e of Holdin Per Cent Per Cent
yp g Total Number Farms Total Farm Land
1950 1955 1950 1955
Owned 81.1 75.5 89.7 81.1
Rented 2.1 1.4 0.7 2.1
Other formsa 5.4 16.0 1.5 5.4
Mixed formsb 11.4 7.1 8.1 11.4
Source: Direccion General de Estadistica y Censo,
Censo Aqropecuario de 1950 (San José, 1953), XIII; Censo

 

Agropecuario de 1955 (San José,

1959),

XVII.

lIncludes land given for cultivation free of charge,
squatters and colonos.

2Includes mixed forms such as owned and rented,
and squatted or rented and squatted,

owned

150

.NNH .Ammma .meb :mmv mmma mo oflumsowmono

 

 

« Oncmw “m .Ammma

.meh

 

 

 

 

 

 

 

 

Honouao "mousom
smmv omma mp oflumsommouo< Oncwo .Omcoo h moflDmHGMDmm mp Hmuocmo so. .
omma\mmma
am.m mae.m Hee.om oom.e II
. . . . moem mumoo

o.ooe o.ooe Hmm.meo.m 6mm.ev 0.00H o ooa omm mom N omo me

. . GOEHQ
e.e e.o mmm.¢om mea.m 0.5 m.m one NmH owe m

~ . @Hm CU
e.ee e.NH om¢.eoe eeo.e m.ee e.HH oem emm emm 4 mm: D m

~ ~ flaws
e.mm m.ee «mm.mmm one.m o.om H.mH wee wee wow u mummo o

a s mHm
H.m N.m mmH.mm mee.m N.m m.o 6mm om mom m wee m
H.e m.m wea.ema mom.m m.oe o.m omm.wom Hoe.m ommonmo
«.me m.mm eme.ome mmo.HH H.ee H.wm «mm.me¢ enm.oa memsflmam
m.mH m.mm woo.emm mem.ma m.aa e.mm «Ne.oom mmm.OH wmoe new
mmu< mEHmm mmsmusmz mend mEHmm mmcmncmz
Demo ucwo owed mEHmm Demo Demo mmud mEumm coflmmm
mom mom HmDOB HODESZ Mom mom Hmuoe HOQEDZ

mmma omma

 

 

 

 

mmma QZ< omma

mZOHBDmHmBmHQ MU<BZMUMMQ .QZdA EMGM DZ¢ m2m<m m0 mmmSDZ .<UHm <EmOU

m.m Mdmfifi

151

TABLE 5.4

COSTA RICA: FARM LAND USE, 1950 AND 1955

 

 

 

 

 

 

1950 1955
Land Use

Manzanas Per Manzanas Per

Cent Cent

Forest 1,130,423 43.6 967,779 36.5
Permanent pastures 894,455 34.5 1,033,399 39.0
Permanent crops 189,361 7.3 222,359 8.5
Fallow land 124,904 4.8 209,927 7.7
Annual crops 145,394 5.6 159,146 6.0
Other crop land 48,570 1.9 39,590 1.5
Other landl 59,113 2.3 22,131 0.8
Total 2,593,220 100.0 2,648,331 100.0

 

 

 

Source: Direccion General de Estadistica y Censos, Censo
Agropecuario de 1950 (San José, 1953), XIV; Censo Agrope-
cuario de 1955 (San José, 1959), XIX.

 

Includes roads, buildings, swamps, urban areas, etc.

bananas, cocoa and sugar cane. These 222,359 manzanas con—
stitute 8.5 per cent of the land in farms and produce crops
which, with the exception of sugar cane, are largely for
export. The third group is permanent pastures (natural or
planted) where livestock production is located; it comprises

1,033,399 manzanas and represents 39 per cent of the farm

152

land. The fourth and last group is composed of land in
forests which covers 36.5 per cent of the total farm land.
Table 5.3 reveals that there was an increase of 2.2 per
cent in the area in farms over this 1950-1955 period. The
changes occurring during the same period by the major
groups of land use are the following: forest, a 7.1 per
cent decrease; crops for internal consumption (rice, beans,
corn, potatoes, etc.) increased by 2.9 per cent; pasture
land 4.5 per cent increase in land in the production of
export crops, showed an increase of 1.2 per cent.

Only 22.8 per cent of all land in Costa Rica is used
for agriculture. The remaining 77.2 per cent of the ter-
ritory is in forests. This is shown in the following
Table 5.5. Despite the large increase in land brought
into agricultural production during this five year period,
1950-1955 (260,736 manzanas or 3.6 per cent of the na-
tional territory), there is still much land which could

be put to agricultural use.

153

TABLE 5.5

COSTA RICA: LAND UTILIZATION

 

 

 

 

 

1950 1955

Land Utilization
Manzanas Per Manzanas Per
Cent Cent
Agricultural land 508,229 7.0 625,022 8.6
Land in pastures 889,455 12.2 1,033,399 14.2
Forestsa 5,882,316 80.8 5,621,579 77.2
Total 7,280,000 100.0 7,280,000 100.0

 

 

 

 

Source: Direccion General de Estadistica y Censo,
Censo_Agropecuario de 1950 (San José, 1953), 13; Censo
Agropecuario de 1956 (San José, 1959, 8.

aIncludes other land. Figures obtained by difference.

 

A study by Waibel in the early 1950's estimates that
there were 1,966,250 manzanas of land which could be
brought into agricultural use in the future.1 This poten-
tial represents 27 per cent of the country's territory and

34.9 per cent of the area in forest in 1955.

 

Universidad de Costa Rica, El Desarrollo Economico de
Costa Rica--Sector Agropecuario (Ciudad Universitaria,
1959), 12.

154

Forest and Forest Products

Although in 1955 there were over 5.5 million manzanas
of land in forest, only a small part of them are being
utilized at the present in Costa Rica. The Ministry of
Agriculture and Livestock has estimated that approximately
some 3.3 million manzanas (58.4 per cent) of the land in
forest can be considered productive. At the present, only
approximately 2.3 million manzanas (40 per cent of the
total forest land and 69.5 per cent of the productive
forest) are being exploited.1 The lumber industry has not

been extensively developed.

Agricultural Production Data
In 1950 agricultural production had a value of 652.1
million Colones ($116.4 million). The value rose to 808.1
million Colones ($144.3 million) by 1955.2 The agriculture
of Costa Rica is characterized by the specialization in a

few crops for export.

1Ibid., 13.

2Banco Central de Costa Rica, Valor Global de la Pro-
duccion Agropecuaria de Costa Rica en el Ano 1950 (San
José, 1959), Mimeo, Ibid., 1955.

155

TABLE 5.6

COSTA RICA: PRINCIPAL CROPS AS PERCENTAGE OF TOTAL VALUE
OF AGRICULTURAL PRODUCTION, 1950 AND 1955

 

 

 

 

P
Classification 1950 1955 er cent
Change
Crops
Bananas . . . . . . . . . 30.0 23.1 —6.9
Coffee . . . . . . . . . 18.0 25.9 +7.9
Cocoa . . . . . . . 2.1 4.4 +2.3
Sugar Cane . . . . 4.3 4.1 -0.2
Corn . . . . . . 4.3 2.5 -1.8
Rice . . . . . . . 3.4 2.2 -1.2
Plantains . . . 1.7 1.0 -0.7
Beans . . . . . . 1.7 1.4 -0.3
Jute . . . . . . . . . . . 1.7 ---- ---—
Potatoes . . . . . 1.0 0.7 -0.3
Total Principal Crops 68.2 65.3 -2.9
Other Crops . . . . . . . 5.5 3.9 —1.6
Total Crops 73.7 69.2 —4.5
Livestock . . . . . . 4.1 5.6 +1.5
Milk . . . . . . . . 9.1 12.0 +2.9
Swine . . . . . . . . . 1.7 1.5 “0:3
Total Livestock and
Livestock Products 14.9 19.1 +4.2
Poultry . . . . . . . . . 1.1 1.3 +0.2
Eggs . . . . . . . . . . . 3.1 3.2 +0.1
Total Poultry and
Poultry Products 4.2 4.5 +0.3
Lumber . . . . . . . . . 7.2 7.2 0,0_
Total Value of Production 100.0 100.0 000.0

 

 

 

 

 

 

 

Source: Banco Central de Costa Rica, Valor Global de la
Produccion Agropecuaria de Costa Rica en el Aho 1950, mimeo.
Ibid., 1955.

156

It can be seen from Table 5.6 that in 1955, fourteen
commodities accounted for 92.0 per cent of the total value
of agricultural production. It can also be noted that
bananas, coffee and cocoa, which are crops produced
primarily for exports, accounted for 53.4 per cent of the
value of the Costa Rican agricultural output in 1955. Five
commodities (coffee, bananas, milk, lumber and livestock)
are responsible for 78 per cent of the total value of the
output: if cocoa, sugar cane and corn are added, 85 per
cent of the total value of agricultural production is
included. During the first half of the 1950's, over 40
per cent of the total output of agriculture was exported.

Table 5.7 shows the growth on the major agricultural
crops of Costa Rica, which in 1955 accounted for 59 per
cent of the total value of agricultural production.

All the crops considered in the table showed an in-

crease in volume of production during the period except
bananas which decreased 12.3 per cent despite a 5.2 per

cent increase in the area planted. This decrease in yield

 

1Universidad de Costa Rica, El Desarrollo Economico de
fiesta Rica--Sector Agropecuario (Ciudad Universitaria, 1959)

32.

157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Is: .0006 s6mv mmmHIommH .6066 66000 06 6666300mmwm¢ 6060056066 mm WMQLM0MMH6LAMMWMM
I606666 .moHDm 06 6m .02 06006066 .666066660 h 66566506604 06 0660606Q62 "006Dom
60660960666
6.666 6.666 6.666 6.66 0.666 6.666 6.666 0.666 0.666 6.666 6.606 6.66 66-6666
6.666 0.666 6.666 6.666 0.666 6.066 6.666 6.666 6.066 0.666 6.606 6.66 66I6666
6.666 6.666 6.666 6.606 6.606 0.666 6.606 6.666 6.666 6.666 6.606 6.66 66-6666
0.666 6.666 6.666 6.06 6.66 6.66 6.606 6.66 6.666 6.666 6.606 6.06 66:6666
6.066 6.066 0.66 6.666 0.606 0.06 6.66 6.66 6.606 6.666 6.666 6.006 6.66 66:6666
6.066 6.666 6.666 6.666 6.666 0.666 6.66 0.66 6.666 6.606 6.606 6.66 66-6666
6.666 6.666 6.666 6.666 6.606 6.666 6.606 0.666 6.666 6.666 6.606 6.606 66:6666
6.666 6.666 6.666 6.666 6.666 6.666 6.666 6.666 6.666 6.66 6.606 6.06 66-6666
6.666 6.666 6.666 6.66 6.66 6.666 6.666 6.066 «.606 6.66 6.66 6.66 66I0666
0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 06I6e66
6066 6066 .6066 6064 .6066 6066 .6066 606< .6066 6066 .6066 6066 .6066
0656 660%
I066 0066 06606 66oo 0660 66656 006600 0666666
006 n 0666 66600

0266 6060 626 2066000066 666096006606 60 mmmeZH .6066

 

 

h.m mqmflfi

 

 

 

158

is probably due to weather and disease conditions Which
have done considerable damage to the plantations of the
United Fruit Company which produces over 90 per cent of the
commercial banana crop of Costa Rica. Coffee production
increased 138.2 per cent with only an increase of 49 per
cent in the area planted. Sugar cane production increased
93 per cent with a 52.2 per cent increase in the area
planted. Likewise, corn output increased 31.9 per cent
with an increase in area of 15.0 per cent. Coffee output
reflected a substantial rise in productivity during the
period. However, beans and rice yields per manzana have

decreased.

Production of Livestock and Livestock Products

Animal and animal products represented 20.3 per cent
of the total agricultural production of Costa Rica in 1955.
Table 5.8 shows the rapid growth of animal and animal pro-
ducts during the period. Livestock numbers increased 80
per cent during this period and milk production also in-

creased by 48 per cent.

159

TABLE 5.8

COSTA RICA, INDEXES OF PRODUCTION OF LIVESTOCK, MILK,
POULTRY AND SWINE, 1950—59

 

 

 

 

1950 = 100

Year Livestock Milk Poultry Swine
1949-50 100.0 100.0 100.0 100.0
1950-51 112.6 171.9 (a) 97.8
1951-52 108.0 118.6 97.9 107.9
1952-53 114.4 131.1 100.2 91.9
1953-54 125.3 159.1 112.1 102.1
1954-55 116.0 104.6 198.5 91.2
1955-56 156.9 135.5 145.8 84.3
1956-57 147.1 136.5 (a) 101.5
1957-58 153.1 126.2 (a) 107.2
1958—59 180.1 143.1 (a) 124.9

Source: Ministerio de Agricultura y Ganaderia, Proyecto

No. 36 de STICA, "Principales Datos Sobre 1a Produccion
Agropecuaria de Costa Rica, 1950-1959" (San José, undatedl4.

a .
Not available.

In addition to increase in the livestock numbers, the

number of cattle slaughtered in 1959 was almost double the

number in 1950.

Furthermore,

beef cattle exports repre-

sented 16.4 per cent of the number of head of cattle and

160

some 9.59 million kilOgrams of beef (21.1 pounds).

Some of the progress made by Costa Rican agriculture
is frequently attributed to the efforts of three institu-
tions: the Agricultural Extension Service, the price
stabilization policies of the National Production Council

and the Rural Credit System. The last two organizations

will be explored in the succeeding pages.

Price Stabilization Policies

Costa Rica was the first Latin American country to
undertake price stabilization policies of agricultural
staples following the Great Depression. The government
attempted to encourage production and counteract price
fluctuations of staple agricultural commodities, which in
many cases were associated with speculation.2 In 1937, a
rural credit system based on local credit boards was
created3 and price stabilization policies were enacted.

Law No. 82 of August 19374 authorized the government to

 

l . . . .
This rapid rate of growth of livestock corresponds Wlth
substantial government encouragement to the industry.

2See Chapter IV.
3The rural credit system will be explored in the next
section.

4This program was originally designed to operate for
two years but was extended by subsequent legislation which
also expanded the commodities included.

161

buy rice, beans and corn in open competition with grain
merchants to stabilize domestic prices of these commodities.
Grain purchases were to be made by the Purchasing Section
of the Revenue Department at prices stipulated before har-
vest. Commodities purchased by this agency were stored in
government controlled warehouses and released, through
normal marketing channels, by the Department of Labor and
Social Welfare, as soon as pre-established price levels had
been reached. In 1943, the price regulation system was re-
organized under the administration of the National Bank.
For policy matters, the price stabilization system was
dependent on a three-member committee called the National
Production Council. The National Bank was authorized to
release stored commodities at any time through retail and
wholesale stores specifically created for this purpose. In
addition, this bank was allowed to make direct purchase
contracts with producers at specified prices; producers
however, were given complete freedom to sell their products
either to the government or to any other party.

Price stability policies remained under the adminis-
tration of the National Bank from 1943 until 1948 when the

price stabilization program was reorganized under the

162

direct responsibility of a new organization called the
National Production Council. Finally, in 1956, the Na-
tional Production Council became an autonomous institution
of the State and gained many functions other than the
administration of price stabilization policies. Under

its new status, the National Production Council,

. . . shall have the specific purpose of encourag-
ing agricultural and industrial production and the
price stabilization of foodstuff required for the
nourishment of the population as well as the price
stabilization of raw materials required by industry.

It shall procure a just balance in the dealings be-
tween consumers and producers so as to improve the
living conditions of the Costaricans. The CNP will
intervene in the regulation of the internal market of
industrial raw materials or agricultural products
whenever necessary to stabilize prices for the benefit
of producers and consumers. In the pursuing of its
ends, the Consejo will coordinate and collaborate with
all credit organisms, agricultural extension or tech-
nical assistance services, or any other organism whose
purpose is to encourage the development of national

production.2

The activities of the Consejo are directed by a five-
member Board of Directors appointed by the government for
four-year terms. The government, however, can appoint

only one member a year—-as the terms of the various members

 

lHereon refered to as the Consejo.

2Ley Organica de Consejo Nacional de Produccion (San
José; Imprenta Nacional, 1956), art. 4.

163

expire. A President and a Vice-president are elected from
the Board. The activities of the Consejo will be appraised
from the point of View of the price stabilization system
for agricultural products, price stabilization for con—
sumers' goods and then other policies intended to encourage
the development of agriculture.
The Consejo's Price Stabilization
System for Producers
The main purpose of the program is to provide a stable
market at equitable prices for those commodities considered
indispensable consumer goods or industrial raw materials.
The price stabilization system for producers is based

on a minimum price which is guaranteed to producers of the
commodities involved. This minimum price is announced and
published before the planting period to permit producers to
adjust their production to price conditions. During the
1950—1959 period, only twelve commodities had a guaranteed
price: rice, beans and corn-~the staple foods of the Costa
Rican diet—-fish, shrimp, lobster, sesame, peanuts (1950-55,
57 and 58), cotton (1951-56), butter (1952), powdered milk

(1953—55), sorghum (since 1955) and beef for export (since

1954).

164

Minimum prices are fixed after a study of production
costs1 of the various commodities in different regions and
different alternative uses of land. The minimum price is
determined by estimating production costs, selling costs
and allowing for a minimum profit for producers. Minimum
prices have often been low for producers in remote regions,
in which case the Consejo subsidizes these producers by
sharing transportation costs. Minimum prices are periodi-
cally revised in response to changing supply and demand
conditions.

Purchases of products under price stabilization pro-
grams are made through fifty-one purchasing agencies loca-
ted throughout the country at every production center.
Each agency is furnished with technical equipment to meas-
ure humidity and impurities in the commodities purchased.
All purchases are paid to producers in cash. The Consejo
buys not only those commodities included in the stabiliza-
tion program but also any other products which are offered

for sale by producers. Products thus obtained are later

k

lProduction costs include not only the cost of inputs
but also capital depreciation and opportunity cost, which
for practical reasons is equal to the interest rate on
agricultural loans. Regional yields in normal production
years are used as a base.

165

sold through the Consejo's selling agencies in their con-

 

sumer price stabilization program which will be explained
later.

Table 5.9 shows the volume and the value of commodity
purchases by the Consejo over the 1950-1959 period. There
are large variations in the value as well as in the volume
of purchases under the price stabilization program. For
example the range in the volume of purchases varied from
14.96 million pounds in 1950 to 67.75 million pounds in
1959. Similarly, the total value of purchases ranged from
5.43 million colones in 1950 to 20.81 million colones in
1959. In general, over the 1950-1959 period, purchases of
rice showed the largest amount in terms of value (second
largest in terms of volume) followed by corn and beans.

Table 5.M)shows corn, rice, and beans purchases (the
three principal staples) by the Consejo, relative to total
production during the 1950—1959 period.

It can be observed that there was considerable year to
year variation in the percentage of total production repre—
sented by the commodities purchased under the price stabil—

ization plan.

166

.0056606 666 8566606

.6Hofl65fl6 6065606H

 

 

 

 

.0060600 60 66066666 66 m05H6> 6066506 mo 666605066 66 60mm066X0 066 006666665OM
.6606500 6066056066 66606062 066 66 60666650 6666 "006506

FH.PHH mm.mbm.m mm.© m©.©mH ¢O.m¢ mm.Hm h¢.mmb Nm.mm mm.HOm.H 5N.¢m m©.HNm.fiififlOE
Hm.ON mm.hh© mm. dm.©m w®.HH hm.m mm.hHH fim.¢ 0?.ONN hm.m ¢O.HmN mmmH
mm.h FO.MHm HH.H mm.®m N®.m OH.H hm.¢N Ow.m BH.NmH V®.H MN.O® mmma
fiN.m Om.N¢m Oh. hO.®H ©®.m Gm.N ho.mm mm.m m0.mmH woom m¢.h© hmmH
66.6 66.666 66. 66.6 66.6 60.6 06.66 66. 66.6 66.6 66.666 6666
66.66 66.666 06. 66.6 66.06. 66. 66.6 06.6 66.666 66.6 60.606 6666
NH.m O¢.OPN 6N. ©®.m mm.m ¢©.H h¢.mm m¢.H mm.h® om.m HN.mmH fimma
66.6 66.666 66. 66.6 66.6 60.6 66.666 66. 66.66 66.6 66.66 6666
66.06 66.666 66.6 66.66 II 66.6 60.666 66.6 66.066 60.6 66.666 6666
06.66 66.606 66.6 66.66 II 66.6 66.666 66.6 66.666 66.6 66.66 6666
66.6 66.666 66. 66.6 II 66.6 06.66 66. 06.66 66.6 66.66 0666
05H6> 60.606650 056666 .6650 05666,. .6650 05.665 .6650 05a6> 60.606650 056666 66.36650

660%

66609 960660 6006 60m 66606 6600 0066

 

 

 

 

 

 

 

 

 

66666I0666 .2660066 2066666666666 60666 666

MMQZD mmm¢mUMDm NBHQOZEOU “AHUZDOU ZOHeobflomm AdZOHBfiZ

m.m mqmdfi

 

167

TABLE 5.10

NATIONAL PRODUCTION COUNCIL: PURCHASES OF RICE, BEANS AND
CORN AS PERCENTAGE OF TOTAL PRODUCTION, 1950-1959

 

 

 

 

Year Rice Corn Beans
1950 10.2 3.2 23.2
1951 9.5 9.6 56.1
1952 38.9 12.0 59.9
1953 11.8 3.3 44.4
1954 24.0 3.8 10.1
1955 53.6 31.8 2.6
1956 37.8 0.5 17.3
1957 13.1 12.5 24.4
1958 11.3 10.8 9.4
1959 61.0 12.9 57.1
Average 25.3 9.8 29.5

 

Source: Computed from data in Table 5.9, and Appendix I.

It can be observed that there were considerable year to
year variations in the percentage of total production repre-
sented by the commodities purchased under the price stabili-
zation plan. On the average, however, the Consejo controlled
25.3 per cent of total rice production, 9.8 per cent of corn

and 29.5 per cent of total bean production during the 1950-

1959 period.

168

In order to maintain price stability and satisfy de—
mand conditions, the Consejo found it necessary to import
specific commodities. During the 1950-1959 period, it was
necessary to import rice from 1956 to 1959 and beans in
1956 and 1959. Total rice imports amounted to 355.2 mil-
lion pounds and represented a cost of 13.3 million colones.
A total of 104.7 million pounds of beans with a cost of
55.4 million colones were imported in 1958 and 1959.1

The price stabilization program is financed by the
Consejo from its own funds as well as from credit from the
Central Bank. The Central Bank will lend the Consejo up
to eighty per cent of the value of commodities in storage
up to a maximum of sixteen million colones. The interest
rate on these loans varies from three to four per cent per
year. The Consejo can borrow from other commercial banks
up to twenty per cent of the value of commodities stored
at rates of interest of six per cent. Altogether, the price

stabilization program has access to credit funds amounting

to over 26 million colones a year.

1From unpublished data supplied by the National Pro-
duction Council.

169

Price Stabilization System
for Consumer Goods

In 1950, a law called "Law of Economic Defense” was
enacted to regulate internal prices for some basic commo-
dities which are ”indispensable” to the consumers' diet.
This law sets up maximum prices for indispensable goods
subjected to periodical revisions and limits the gross mar-
gin of retail and wholesale establishments dealing with
consumer goods. However, the law made no provision to
control speculation. Since 1948, the Consejo was given
the power to control the price stability of indispensable
goods. For this purpose, the Consejo was allowed to sta-
bilize prices and counterspeculate as well as to use its

storage facilities to regulate the supply of indispensable

consumer goods. To meet this end, the Consejo relies on a
network of retail and wholesale establishments. In 1959,

this network consisted of seven wholesale stores and 59
retail establishments located throughout the country. Plans
for fifteen other stores are pending on account of lack of
funds.

The establishment of the Consejo transacted 106.5 mil-
lion colones of business during the 1950-59 period. The

volume of sales has been increasing; and it reached an

170

all-time high of 21.4 million colones in 1959.1 Although

the Consejo considers normal profits to vary from six to
ten per cent of gross sales for wholesale stores and from
ten to fifteen per cent in retail stores, total profits
amounted to 3.3 per cent of gross sales in 1959.2

The Consejo stores currently sell some 120 different
consumption goods.
Other Activities and Policies
of the Consejo

The Consejo has grain elevators with a total capacity
of over eighty million pounds.3 Although the construction<1f
regional grain elevators is given high priority at the
present, the grain elevator in the Pacific Province of

Puntarenas (Barranca) still accounts for one-half of the

Consejo's total storage capacity.
The Consejo also operates feed mixing plants which

prepare concentrate for animals and a flour mill. In

 

1Consejo Nacional de Produccion, Fundamentos y Otros
gggLos Expendios y Almancenes de Consejo Nacional de Pro-
duccion (San José, 1961), Mimeo, 14, 19.

21bid., 9-10, 16.

3A large proportion of the C.N.P. grain elevator tech-
nical staff was trained in the U.S. under the auspices of
the ICA.

171

addition, the Consejo built and administers a model
slaughter house in Cartago which has a slaughtering capa-
city of 105 head a day. A second slaughter house to be
built in Alajuela will have a capacity to process 300
animals a day. The Consejo has operated the Nacional
Liquor Factory--a government monopoly--since 1949, and
receives 42 per cent of the profits of the liquor mono-

poly. A portion of these profits are used to build feeder

roads in rural areas.

In order to contribute to agricultural development
the Consejo acts as a guarantor of producers for credit
with commercial banks for credit up to 100,000 colones.
Under this provision the Institution has made credit

available to producers which amounted to 38.3 million

colones from 1951—59.1

The Consejo also aids producer cooperatives. This
organism is the major shareholder of the Milk Producers

Cooperative. Among other activities, this organization

processes powdered milk which is stored by the Consejo

and distributed to the Ministry of Health's nutrition

program.

1Unpublished data supplied by the Consejo Nacional de
ProducCion.

172

Agricultural Credit System

The agricultural credit system had its origin in 1914
with the founding of the International Bank. The program
was to make loans to small producers for amounts not
greater than 500 colones out of an original fund of 200,000
colones. The modern agricultural credit system in Costa
Rica, however, was started in 1937 by the National Bank
which replaced the International Bank. This credit system
operates through the use of local boards and committees
called Rural Boards of Agricultural Credit. The National
Bank's branches administer agencies which in 1957 numbered
48 (see Table 5.1D. These agencies operate exclusively
with respect to agricultural credit. Each agency is
governed by a local board of five members appointed by the
banks for terms of two years with provision for reappoint-
ment. Members of the Board are paid an honorarium for each
session attended. The necessary office and field staff of
each agency are appointed by the Bank and must include an
ingeniero agronomo (agronomist) who must reside in the area
and acts as an executive officer. The agronomist has a

voice but no vote in the local board. His main duty is to

Supervise the loans granted to producers.

173

The Central Office of the Rural Credit Boards advises
the local boards, supervises their operations, and acts as
their intermediary before the Board of Directors and other
officers of the National Bank. Loans are granted to pro-
ducers without procurement charges and are classified into
three major categories: short term loans (one year or less);
medium term loans (more than one year but less than ten
years) and long term loans (ten years or more). Each major
category is subdivided into agriculture, livestock, and
industry (especially those utilizing agricultural raw ma-
terials). These major subdivisions include loans for work—
ing expenses, investment in equipment or other capital
goods, transportation storage, and services, loans for
purchasing or improvement of property, mortgage cancella-
tion, etc.1 The interest rate is six percent per year.
Each load is limited to fifteen thousand colones per per-
son, however, the maximum credit at any one time is to
twenty thousand colones per person. Personal guarantee of
the recipient is the usual security accepted by the rural

boards 0n short—term loans, however, for medium and long

1Banco Nacional de Costa Rica-Juntas Rurales de Cre-
dito Agricola, Classificacion de Creditos, San José,
November, 1955, Mimeo, 19-21, 23.

174

term loans, the pledging of chattels (including livestock)
or mortgages on real estate are required. In 1956, short
term loans amounted to 41.9 per cent of the loans, medium
term 51.9 per cent and long term 6.2 per cent.1 During
1947—52, 4,732 loans with a total value of over 10.7 mil—
lion colones were granted for the purchases of farms. Over
half these were made to tenants.

According to one author,3 the Agricultural Credit
System in Costa Rica is one of the world's most successful
examples of rural credit systems operated using local
boards. The agricultural credit system operated four rural
agencies in 1943 which made 578 operations amounting to
145,300 colones; by 1949, the number of rural agencies had
increased to 33 and granted 15,846 loan applications with
a total value of almost 14 million colones.4 From 1937 to
1949 rural boards granted 100,000 loans to small producers

which amounted to 61.8 million colones. During this same

 

lOp. cit., Echeverria, 47.

21bid., 38, 41.

3H. Belshaw, "Agricultural Credit in Economically
Underdeveloped Countries, F.A.O., Rome, 1959, 140.

4Echeverria, op. cit., 39, 49.

175

period (1937-49) which covers 19 years, the operation of
the Rural Credit Boards has represented a 1.9 million
colones loss to the National Bank. This operational loss
is assumed by the bank as a public service contribution.
However, losses on credit amounted only to 2,499 colones
which represent the balance on 14 loans.1 Table 5.

shows that from 1950 to 1957 the rural boards granted
154,151 loans for a total of 218.7 million colones. The
volume of credit in these eight years more than tripled
the 1937-49 period. In 1957, the number of loans reached
an all—time high of 27,566 which amounted to 51.2 million
colones. It is estimated that by 1957, 95 per cent of the
farmers were being served by the rural credit boards.2
Although a large proportion of the loans are made with the
personal guarantee of the recipient (65 per cent in 1952;
42 per cent in 1956), the total loss on credits granted by
the rural boards from 1937 to 1955 amounted to 27,245
colones which represent the balance of 52 loans. These
figures are insignificant if one takes into account that
during that period, 208,957 loans with a value of 194,420

million colones were made.

 

lIbid., 32. 2Belshaw, op. cit., 142.
3Echeverria, op. cit., 46.

RURAL CREDIT BOARDS, NUMBER AND VOLUME

176

TABLE 5.11

 

 

 

 

 

OF LOANS, 1950-1957

Year Number of Number of Valuea Average

Boards Loans Loana
1950 33 17,752 16,976.6 2.32
1951 37 19,403 21,146.4 2.50
1952 38 19,994 24,623.0 2.99
1953 39 18,006 23,824.7 3.43
1954 40 16,838 24,221.3 1.45
1955 44 16,967 26,186.2 1.56
1956 47 17,625 30,492.5 1.73
1957 48 27,566 51,240.0 1.76
Total 48 154,151 218,701.7 2.22

Source: Luis Echeverria, Resena Cronologica de las

 

Cajas de Credito Agricola del Banco International de Costa
‘Rica 1914-36 y de las Juntas Rurales de Credito Agricola

del Banco Nacional de Costa Rica 1937-1957 (San José,
46-50.

36,

agriculture were explored in detail in this chapter.

39, 42-43,

a
Thousands of colones.

Summary

1958),

The performance and characteristics of Costa Rica‘s

The latest Census of Agriculture

(1955) indicates that

177

Costa Rica has 47,286 farms covering a total area of 2.65
million manzanas (4.5 million acres). The land in farms
(including farm wood lots) represents 36.4 per cent of the
Costa Rican territory. A total of 260,736 manzanas were
brought into cultivation from 1950—1955. There still
remains a large acreage of idle farm land which could be
brought into production. It was estimated in the early
1950's that an additional 27 per cent of the land in
forests could be utilized for agricultural production.
Costa Rica is a country of small agricultural pro-
ducers; in 1955, 60.3 per cent of all farms were 19 man-
zanas (32.3 acres) or less, and account for 7.4 per cent
of the farm land. However, in 1955, 0.1 per cent of all
farms or 50 farms comprised 21.0 per cent of all farm land.

These figures suggest the presence of minifundia as well as

latifundia type of ownership.

 

In 1955, 75.5 per cent of all farms, and 88.9 per cent
of the total agricultural land in Costa Rica was being

farmed by their legal owners.
The agricultural census of 1955 shows that 15.2 per
cent of the total farm land is utilized for annual crops

(and fallow land), in other words, land used mainly to

178

produce crops for internal consumption. Of the total farm
land, 8.5 per cent was in permanent crops grown mainly for
exports (i.e., coffee, bananas and cocoa) and 39.0 per
cent was in pastures. The remaining 36.5 per cent of the
total farm land was in forest.

As can be expected in an underdeveloped country, Costa
Rican agriculture is characterized by its lack of diver—
sification. However, for the size of the country, Costa
Rican agriculture has a relatively high degree of diver—
sity. In 1955, fourteen commodities (ten principal crops
plus livestock, milk, swine and lumber) were responsible
for 92 per cent of the total value of agricultural produc-
tion. Coffee, bananas and cocoa, which are produced pri-
marily for export, accounted for 53.4 per cent of the total
value of agricultural production. In 1955, 59.5 per cent
of the total volume of agricultural production was exported
and 40.5 per cent was domestically consumed.

During the 1950—1959 decade, there was considerable
increase in the volume of production of principal crops
(with exception of bananas) and livestock production. Table
5.7 shows that coffee production more than doubled during

the period while banana production declined. Sugar cane,

179

corn and rice production increased during the period while
bean output increased moderately. However, these increases
in production were accompanied by considerable increases

in area planted. Coffee production rose 138.2 per cent
from 1950 to 1959 while coffee land increased 49.0 per
cent; likewise, sugar cane rose 93.0 per cent in volume
while area rose 52.2 per cent. This indicates sharp pro-
ductivity increases in these two commodities. Conversely,
corn shows a slight increase in output over the area planted
while beans and rice output was surpassed by the increase
in area. Banana production decreased despite the increase
in area planted. This evidence suggests that increases in
output of the staple food commodities (corn, beans and rice)
have been brought about by increases in area planted rather
than by productivity gains.

A relatively high absolute increase in output has been
experienced by animal and animal products. During the 1950-
1959 period, livestock numbers rose from 100 in 1950 (base
period) to 180.1 in 1959, or 80 per cent; milk production

increased 43.1 per cent while swine production showed little

change.

180

Some of the progress made by Costa Rican agriculture
is attributed to the Agricultural Extension Service, the
price stabilization policies of the National Production
Council and to the Rural Credit System. Although it is
difficult to measure the degree of success of price stabil-
ization policies, at least some of the general stability of
agricultural price levels during the 1950-1959 period can
be attributed to the Consejo and its policies.

The Rural Credit System has been very successful.
Success can be measured not only in terms of the volume of

credit granted to small farmers but also in terms of an

enviable repayment record.

CHAPTER'VI
AGRICULTURE AND INTERNAL GROWTH

Chapter I pointed out that agriculture can make impor—
tant contributions to internal growth by earning foreign
exchange through food exports, providing funds for capital
formation, serving as a market for industrial products,
providing manpower for other expanding sectors and finally,
providing increased food supplies for the indigenous popu—
lation. This chapter will explore the contributions of
agriculture to the growth of the Costa Rican economy in
the 1950-1959 period.

It has been pointed out in Chapter III that the rural
sector in Costa Rica comprised 66.5 per cent of the popula-
tion in 1955 and employed 54.7 per cent of the economically
active population in 1950.1 Furthermore, agriculture pro—
vided an average of 43.7 per cent of the gross domestic
product over the 1950-59 period (see Table 6.1). These
figures alone show that agriculture is the major existing

industry in Costa Rica and hence indicate the importance of

_

1
See Chapter III.

181

182

agriculture as a market for industrial products and as a
source of revenue for over-all capital formation. These
figures also show the importance of agriculture as a
source of labor for expanding non-agricultural sectors.
In fact, the economically active population engaged in
agriculture decreased seven per cent from 1927 to 1950.1
How well has Costa Rican agriculture provided an in-
crease in food supplies? To avoid price increases, food
supplies must expand at a rate equal to the rate of growth
of population plus the increment of per capita income times
the income elasticity of demand.2 For the 1950—1959 period,
Costa Rica experienced annual rates of population growth
and per capita income of 3.87 and 3.66 per cent respec-

. 3 . .
tively. Thus, the required annual rate of increase of

agricultural output, assuming an income elasticity of 0.5,

 

lo . cit., 14.

2Should output fail to rise at the required rate, food
prices begin to rise relatively, reducing the real income
of the population, especially the wage-salary classes since
they spend a higher pr0portion of their income on food.
Since rising food prices may lead to political discontent,
the alternative is to grant money wage increases (thus reduc-
ing profits and investment) or to import more food (which
Will compete with capital imports for economic development).

3See Chapter III and Chapter IV.

183

would be 5.7 per cent. If income elasticities of 0.6 and

0.7 are assumed, the corresponding annual rates of growth

of agricultural output will be 6.0 and 7.4 per cent. Table
6.1 shows agriculture's contribution to the gross domestic

product of Costa Rica in constant prices for the period

TABLE 6.1

COSTA RICA: PERCENTAGE CONTRIBUTION OF AGRICULTURE
TO GROSS DOMESTIC PRODUCT 1950-1959

Millions of Colones at Constant Prices

 

Agriculture's

 

Year T2321 Agriggggure's Contribution
to GNP
Per Cent
1950 1067.9 546.4 51.16
1951 1120.1 564.1 50.36
1952 1377.8 648.9 47.09
1953 1568.4 695.8 44.36
1954 1605.7 646.5 40.26
1955 1706.7 750.0 43.94
1956 1744.2 655.7 37.59
1957 1880.1 727.7 38.70
1958 2019.1 860.8 42.63
1959 2069.7 858.3 41.47

 

Source: Chapter IV, Table 4.5, p. 135.

aAgriculture's GDP was deflated by the combined whole-
sale agricultural price reproduced in Table 6.3.

184

1950-1959.1 The growth of agricultural output computed
from these aggregates shows that agriculture achieved an
annual rate of growth of 4.55 per cent.2 Therefore, in
View of the discrepancy between the "required" and the
actual rate of agricultural output, Costa Rican agricul—
ture has apparently fallen short of meeting the increased
demand for food induced by rising incomes and population.
To explain this phenomenon the following hypotheses are
advanced: first, the apparent inability of agriculture
to cope with increased demand for food may be traced to
statistical inadequacies of aggregate data. In other
words, since national accounts do not measure non-market

production of goods and services (i.e., farm produce

_

1This table shows that agriculture contributes over
forty per cent to “the total output of the nation. However,
the rate of growth of the agricultural sector is the slow-
est of all sectors and contributes only 28 per cent to the
rate of growth of the Costa Rican economy. This figure was
obtained by using a formula proposed by Kuznets to calculate
the share of growth of agricultural production in the growth
of total product. Simon Kuznets, "Economic Growth and the
Contribution of Agriculture: Notes on Measurement," Inter-
national Journal of Agrarian Affairs, Vol. III, No. 2
(April, 1961), 59.

2The rate of growth of domesticly consumed agricultural
production (agriculture's GDP minus exports, both at con-
stant prices) was 4.3 per cent per year.

185

consumed at the farm or subsistance production and labor),
agricultural output, and hence the rate of growth, may be
underestimated. Second, the distribution of income may

be such that the rise in incomes has benefited only a
relatively small sector of the population and therefore,
higher incomes do not bring forth a proportional increase
in the demand for food. In this situation, consumption by
the masses may have increased, remained constant or pos—
sibly decreased over the 1950-1959 period. The third
hypothesis is that the failure of supply to cope with
increased demand may have been met by increased food im—
ports. The fourth hypothesis is that the income elasticity
of demand may be less than 0.5. Finally, a fifth proposi-
tion contains elements of the above four hypotheses.

It could be expected that estimates of agricultural
production in Costa Rica underestimate the actual output
stream since the non-market production may be substantial.
Lack of data on consumption levels for the 1950-1959 period
as well as data on income distribution do not allow us to
substantiate to what extent the second hypothesis may

explain the phenomenon. Since it is unlikely that the in—

come elasticity of demand for food is less than .5, the

186

proposition left for consideration is that the increased
demand for food induced by population and income growth
has been met, at least partially by increased food imports.
Table 6.2 shows the value of food imported by Costa
Rica from 1952 to 1959.1 It can be seen that food imports
rose from 8.2 million dollars in 1952 to 15.2 million
dollars in 1959, and represent a total expenditure of 91.92
million dollars over the period. Cereals represent 43.9
per cent of the total value of imports during the period,
followed by milk products, eggs and honey with 13.03 per
cent. Although 5.7 per cent of the total imports of Costa
Rica during this period are live animals for consumption
and meat and meat products, Costa Rica has become a net
beef exporter since 1954.3 The bottom line of Table 6.2
shows that food imports as a percentage of total imports

have remained at a fairly constant rate——ll to 25 per cent—-

over the 1952—1959 period. Likewise, food imports as a

 

1Data for 1950 and 1951 are not included since import
classification for those years does not allow an accurate
estimate of food imports.

2This item is very heavily influenced by wheat imports,
a commodity which is not produced in Costa Rica. Rice im-

ports are shown in Table 6.2, p. 187.

3See Table 7.1.

187

TABLE 6.2

COSTA RICA: FOOD IMPORTS 1952-1959

Thousands of Dollars

 

 

 

 

Classification
1952 1953 1953 1955

Live animals for

consumption 240.9 79.3 267.8 250.0
Meat and meat

products 147.0 191.7 189.4 119.0
Milk products, eggs

and honey 1,032.0 1,428.8 1,304.1 1,385.3

Fish, seafood and

seafood products 437.2 517.6 546.7 435.9
Cereals and cereal

products 3,749.6 3,905.2 4,375.3 5,882.0
Fruits and

vegetables 606.7 718.1 662.7 1,061.8
Sugar and sugar

Products 194.6 266.8 224.8 208.4
Tea, cocoa,

Spices 136.8 173.3 188.5 136.2

Feedstuffs for
animal nutrition

258.9 366.2 303.7 497.6
Other food
products 1,401.0 1,424.2 1,980.7 1,830.§_
Total food
imports 8,204.7 9,071.2 10,043.7 11.807-0
Food imports as per
cent of t1.imports: 12.09 12.31 12.45 13.50
Food imports as per
cent of agricul-
tural GDPa 7.16 7.58 8.32 8.12.

 

 

Source: Unpublished data,
General de Estadistica y Censo

Supplied by the Direccion

188

 

 

 

 

Year
1956 1957 1958 1959 1952-59 1952‘59
Per Cent
182.1 150.5 177.2 2,785.9 4,133.7 4.50
162.4 121.8 93.7 113.7 1,138.7 1.24
1,522.6 1,822.8 1,917.9 1,561.9 11,975.4 13.03
383.5 365.1 407.8 461.0 3,554.8 3.87
6,054.6 5,102.0 5,262.3 6,030.3 40,361.3 43.91
1,855.6 746.4 642.6 1,017.6 7,311.5 7.95
1,447.7 213.0 232.8 202.2 2,990.3 3,25
140.1 118.1 163.8 146.7 1,203.5 1.31
882.3 926.9 1,236.0 1,470.5 5,942.1 6.46
1,714.1 1,804.0 1,653.8 1,501.6 13,310.2 14.48
14,345.0 11,370.6 11,787.9 15,291.4 91,921.5 100.00
15.72 11.06 11.87 14.89
12.18 8.61 7.57 9.81

 

a I
In constant prices.

189

percentage of agriculture's GDP, have remained relatively
stable at levels ranging from 7 to 12 per cent. On the
export side of the picture, agricultural exports rose from
an index of 80 in 1950 to 109 in 1959 (1953 = 100), and
Costa Rica has experienced favorable balance of trade
during the 1950-1959 period.1

Table 6.3 presents some general price indexes for the
Costa Rican economy. The wholesale price index declined
from 112.9 in 1950 to 100.0 in 1953 and rose again to 107.4
in 1959. The retail price index increased steadily from
96.3 in 1950 to 117.5 in 1959. The cost of living index
rose from 100.0 in 1952 (base period) to 113.4 in 1959 at
a rate of 1.6 per cent per year. The foodstuff index (a
component of the cost of living index) rose 14.9 per cent
from 1952 to 1959. These price indexes reveal a consider-
able degree of price stability especially for an economy

which is growing at a rate of eight per cent per year (GNP).

Summary
The gross domestic product of agriculture has exper-

ienced an annual rate of growth of 4.55 per cent over the

 

lIbid., Table 7.6.

190

TABLE 6.3

COSTA RICA: GENERAL PRICE LEVEL INDEXES, 1950—1959

 

 

 

Year Whole— . a COSt Retail AE:::Il‘
salea Retail LiSEn Food—c Price
g stuffs Indexd
1950 112.90 96.35 -- -— 100.62
1951 116.45 102.91 -- -- 104.50
1952 104.52 100.04 100.00 100.00 98.96
1953 100.00 100.00 100.48 101.62 100.00
1954 104.41 103.03 103.09 105.84 111.96
1955 107.24 103.63 106.93 109.74 104.04
1956 108.14 104.64 108.00 110.00 107.07
1957 108.05 105.15 110.15 110.86 108.31
1958 108.01 114.46 113.07 115.59 100.03
1959 107.43 117.53 113.39 114.96 92.62

aPrice index computed by the Central Bank of Costa Rica
with a base of 1953 = 100, Décima Memoria Anual, Afio 1959
(San José: Mayo 1960), 85-87; price indexes for 1950-52 are
the author's extrapolations of previous indexes computed by
the Central Bank with a base of 1936 = 100, Sexta Memoria
Anual, A60 1955 (San José: Marzo, 1956), 87-88.

 

bIndex computed by the Direccion General de Estadistica
y Censo, reproduced in Décima Memoria Anual, A60 1959, 87.

 

CA component of the Cost of Living Index.

Price index computed by the author based on livestock,
export and agricultural products wholesale price indexes
(computed by the Central Bank) using the 1950—1955 weights.

191

1950-1959 period. With per capita income growing at an
annual rate of 3.66 per cent and assuming an income
elasticity of demand for food of .5, the annual growth of
demand for food would be 5.7 per cent. Judging from these
growth rates, agriculture has apparently been unable to
satisfy the increased demand for food. Two principal
propositions may help to explain this phenomenon. First,
since national income data do not include non-market agri-
cultural output, and this output may be substantial in

Costa Rica, gross domestic product may have underestimated
agriculture's output. Second, the income distribution in
Costa Rica may be such that rising incomes may have benefited
only a small sector of the population and therefore, have
not induced a proportional increase in demand for food.
Thus, in one hand, the actual rate of growth of agricultural
supplies in Costa Rica may have been higher than the one
shown by agriculture's gross domestic product; on the other
hand, the actual rate of increase of demand for food
induced by higher incomes may have been lower than the
"required" theoretical rate. Moreover, the discrepancy
between agricultural supply and demand growth rates was

partially filled by food imports. Increased food imports

192

does not necessarily mean a failure of agriculture to cope
with demand increases induced by higher incomes and popu-
lation growth. The dualism of the agricultural sector in
Costa Rica (and other underdeveloped countries), allows
agriculture to fail to meet food requirements while agri—
cultural exports pay for food imports.
Costa Rican agriculture seems to have fallen short of
satisfying internal demand for food, as can be deduced
from the increase in food imports. However, the relative
stability of food imports as a percentage of total imports
and of total agricultural output, indicates that agricul-
ture's position in coping with internal demand may not have
improved but at least it has not deteriorated. Moreover,
indexes of agricultural exports and balance of trade con-
ditions reveal that agriculture has succeeded not only in
paying for the rise in food imports but also for almost all
non-agricultural imports during the 1950-1959 period.
Wholesale and retail price indexes indicate a consider—
able degree of price stability in the Costa Rican economy

over the 1950-1959 period. The cost of living index rose

 

1The performance of Costa Rican agriculture in the
production of export commodities will be explored in greater

detail in the next chapter.

193

from 100.0 in 1952 to 113.4 in 1959 at a rate of 1.42 per
cent per year. The food component of the cost of living
index rose from 100.0 in 1952 to 114.9 in 1959 or an annual
rate of increase of 1.47 per cent.1 These figures indicate
that, unlike other Latin American countries, Costa Rica has
not experienced sharp price increases caused by unsatisfied
demand for food products. Annual price increases are not
only moderate but could also be said to be normal in an
economy which is growing at a rate of eight per cent per
year (GNP). Some of the price stability may be attributed

to the successful price stabilization policies of the CNP.

 

lThe wholesale index of agricultural prices for domes-
tic consumption rose from 100.0 in 1953 to 105.4 in 1955
and then declined to 101.7 in 1959. A total weighted
wholesale price index of agricultural products is reproduced
in Table 6.3. This index, however, is very heavily influen—
ced by the large price increases of agricultural exports
from 1954 to 1957 and their subsequent decline since 1957.

CHAPTER VII
AGRICULTURE AND EXTERNAL BALANCE

It was pointed out in Chapter I that one of the char-
acteristics of small underdeveloped nations is the high

concentration of production in primary production for

international trade. Small nations, as well as most pri-

mary producers, are confronted with two main problems in

their relations with industrial countries. First, unstable

export proceeds caused by a high degree of price instability

of primary products in international markets, and second,

a relative decline in their long-run capacity to import

caused by the deterioration of their terms of trade. The

recommended structural solution for these two main problems

is industrialization. However, even if the argument is

valid, industrialization is a long-run process and at

least, in the short-run, agriculture can plan an important

role in external balance by paying for capital imports re-

quired for economic development. Moreover, agricultural

exports may be called upon to pay for food imports should

agriculture fail to satisfy domestic demand. This chapter

explores the contribution of Costa Rican agriculture to

194

195

the external balance of the nation's economy over the 1950—
1959 period. It will deal with the situation and principal
trends of exports, imports, balance of trade, balance of
payments and the price stability of the external sector of
Costa Rica from 1950 to 1959.

Costa Rica has a high degree of concentration of eco-
nomic activity in production for export. In fact, over
the 1950-1959 period, exports represented an average of
23.4 per cent of the nation's GNP and 58.3 per cent of
the agricultural GDP (see Table 7.1). However, since 1953
agricultural exports have represented a smaller percentage
of GNP.

Over the 1950—1959 period, coffee, bananas and cocoa
accounted for 91.7 per cent of the total value of exports.
Table 7.1 shows the relative importance of the main exports
during this period. Coffee represented 44.3 per cent of
total exports, bananas 41.3 per cent, cocoa 6.1 per cent,
jute 2.0 per cent and livestock and beef 1.5 per cent. These

five commodities are responsible for 95 per cent of the

total exports. During this ten year period, banana exports

have declined in importance in absolute terms and in rela-

tion to coffee which has become the leading export

196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

.6006 u 66660 600666 60666000 066
.06 .60 .60006 .666666060>66D 0606600 6060 66000 00 0606060>
I66D .06606xm 606000116060 66000 00 006506000 0660666000 60 8066 6660 0006 6066 .60006
£0662 .0000 6600 0006 000 666664 6660802 66X00 606 .60006 .0000 6600 66660 066Qm0m 0560
10060 .0006 000 6060 66000 00 00060 00 6666660 .6060 66000 00 6666600 00660 "006600
00.00 00.00 00.00 00.00 00.00 00.00 06.00 00.60 00.00 06.00 00.00 6020 0.0666
16606606 60
6600 60m 06
066omx0 66609
00.00 00.00 00.00 00.06 06.06 06.00 00.06 06.00 00.00 60.00 00.00 6020 00
6600 60m 06
066omx0 66609
00.006 60.000 00.00 00.60 00.00 06.00 00.00 00.60 66.00 00.00 06.00 00.00 066omx0 66608
00.6 00.00 00.0 00.6 06.0 60.0 60.0 00.0 00.6 06.0 06.0 00.0 06600x0 60:60
066.6 00.66 00.0 00.0 06.0 00.6 00. 066. II ..I ..I II 00090660060066
00.0 00.06 60. 00.6 60. 00.6 00. 00.6 00.0 00.0 60.0 00.6 0660
06.0 06.06 00.0 00.0 00.0 00.0 00.0 00.0 00.6 00.6 60.6 00.6 06060
00.66 60.000 00.06 00.00 00.06 00.00 00.00 00.00 00.00 00.60 06.00 00.06 006000
00.66 06.060 00.06 06.00 00.00 00.00 60.00 60.00 00.00 00.00 00.60 00.60 0666660
00I0006 0006
0066 I 0006 0006 0006 0006 0006 6006 0006 0006 6006 0006 00666008500
60060 0006
I 0
0666600 00 06066662
0006:0006 memomxm .m.o.m 60805 "40Hm 09000

6.0 mgmflfi

 

197

TABLE 7.2

UNITED FRUIT COMPANY EXPORTS AS PERCENTAGE OF TOTAL
COSTA RICAN EXPORTS, 1955 - 1959

 

 

 

Commodity 1955 1956 1957 1958 1959 Average
Bananas 98.82 98.95 99.53 98.79 96.12 98.44
Cacao 36.61 33.79 39.35 31.28 25.50 33.06
Jute 100.00 100.00 100.00 100.00 100.00

Total exports 44.31 41.46 41.82 31.98 27.74 37.46

 

Source: Banco Central de Costa Rica, Balanza de Pagos de
Costa Rica, 1959, Undecimo Reporte Anual (San José, 1960), 18.

commodity. Similarly, the relative importance of jute ex—
ports declined during the 1950-1959 period while beef and
livestock exports have increased both in absolute terms and
in relative importance.

The United Fruit Company marketed over 98 per cent of

banana exports, all jute exports and one-third of the cocoa

exports, as shown in Table 7.2. This table also shows that

United Fruit marketed 37.5 per cent of the total Costa Rican

exports during the 1955-1959 period.

198

The United Fruit Company plantations are located pri-
marily in the Southern Pacific Coast of Costa Rica. In
1955, the company had 25,000 acres of bananas, 10,000 acres
of African palm oil and 5,000 acres of cocoa. In addition,
they had 5,000 acres of jute and 19,000 acres of cocoa in
the Atlantic Coast near Port Limon. In total, the United
Fruit Company had approximately half a million acres of
land in Costa Rica which represents approximately four per
cent of the nation's territory. In 1955, about one—fourth
of the land possessed by United Fruit was under cultivation}'

Unlike bananas, the coffee industry is entirely owned
by Costa Ricans. Moreover, a great proportion of coffee
output is produced on small farms. In 1955, 42 per cent of
the coffee output was produced on farms of less than 84
acres and 24.8 per cent on farms between 84 and 186 acres.2
Farms of these two sizes accounted for 90.8 per cent of

3
the total number of farms in 1955.

 

1Stacy May and Galo Plaza, La United Fruit Company en
America Latina (New York: National Planning Association,
1958), 151-52.

Direccion General de Estadistica y Censo, Censo Agro—
Egguario de 1955 (San Jose, 1959), XXVII.

 

3
See Chapter V.

199

This dichotomy in the ownership and organization of
production of Costa Rica's two most important exports, cof—
fee and bananas, has important economic implications. Price
changes of banana exports have less impact on the economy
as a whole than price changes in coffee exports. In the
first place, since the coffee industry is entirely owned
by Costa Ricans, nearly all the foreign exchange generated
by coffee exports is absorbed by the nation's economy. Con—
versely, since most of Costa Rica's bananas are produced
and exported by the United Fruit Company, only a certain
percentage of the earnings from banana exports come into
the country. The reason for this is that under the pres-
ent contract, the United Fruit Company is authorized to
subtract profits, capital depreciation allowances, and the
cost of its own imports, from its export earnings.l Thus,

a relative price change in banana exports has less impact
on export earnings than a similar price change in coffee
exports. Moreover, since the total value of coffee exports

(even at constant prices) is greater than that of bananas,

 

Costa Rica received an average of 44.8 per cent of
the total export earnings of the United Fruit Company during
1948 to 1954. Universidad de Costa Rica, El Desarrollo Eco-

nomico de Costa Rica-~Sector Externo (Ciudad Universitaria,
1959), 21-22.

200

fluctuations in coffee prices will have a greater impact
on the Costa Rican economy than equivalent changes in
banana prices. Finally, since a larger proportion of the
population is dependent either directly or indirectly on
the coffee industry, price changes of coffee exports affect
a larger proportion of the population than would export
price changes of bananas.

Table 7.1 shows the value of Costa Rican exports over
the 1950—1959 period. Exports rose from 55.6 million dol—
lars in 1950 to 84.7 million in 1954, declined to 67.4
million dollars in 1956 and rose to an all-time high of
91.9 million dollars in 1958 and declined to 76.7 million
dollars in 1959. Year to year fluctuations in export earn—
ings averaged 10.6 per cent over the period considered.

Table 7.3 shows price and volume indexes of total ex-
ports and of principal export commodities from 1950 to 1959.
The total volume of exports increased 36.2 per cent from
1950 to 1959. However, there were significant year to year
variations in volume which averaged 13.2 per cent during
the period considered (range 2-27 per cent). Exports prices
rose from 84 in 1950 to 109 in 1957 (116 in 1956) and then

declined since 1958 to a low of 84 in 1959. Indexes of

201

both volume and price of exports seem to be dominated and
behave similarly to corresponding indexes of coffee ex-
ports. Coffee exports rose 126.4 per cent from 1950 to
1959, however, year to year volume variations average 20.0
per cent during this period. Coffee prices rose from 78
to 124 by 1956, then declined to 116 in 1957 and finally
to 78 in 1959. Year to year variations in price averaged
14.0 per cent during this period. Banana exports have
decreased 37.5 per cent from 1950 to 1959 with average
yearly variation in volume of 13.1 per cent. Banana prices
increased fairly constantly from 1950 to 1957 and declined
sharply to 87 and 88 during 1958 and 1959. Banana prices
showed a yearly price fluctuation of only 4.33 per cent;
the least variation of all export commodities.

Table 7.4 shows the geographical destination of Costa
Rican exports for 1950, 1955 and 1959. In 1959, 48.9 per
cent of all export commodities were exported to the United
States, 25.2 per cent to Germany and 11.9 per cent to other
European countries. The value of Costa Rican exports to
the United States decreased 29.3 per cent while the value
of exports to Germany has increased 24.8 per cent over the
1950-1959 period. Germany is the principal market for Costa

Rica's coffee.

202

.A066OQX0 mo 05660> >6 0066666665 0560
. . 6 6660055000 0066
. B 60 05608 05006
H6

 

 

.66066 66666 6c6

0006 .6600v 0066066660 666066666 6660666660666 .0666 66660602 666066666066
. H

 

 

 

 

 

 

 

 

 

 

 

"006600
6.00 006 006 60 006 006 606 00 606 00 00 00mm
0.006 006 006 60 006 006 666 00 606 00 00 0006
0.00 006 606 006 00 00 006 066 006 006 00 0006
0.00 006 606 066 00 00 00 606 60 066 00 0006
0.006 006 066 006 00 006 666 066 606 006 00 0006
0.006 00 066 066 60 066 066 006 00 006 006 6006
0.006 006 006 006 006 006 006 006 006 006 006 0006
0.60 006 00 60 00 00 006 00 00 60 666 0006
0.00 606 00 00 00 006 06 00 00 00 00 6006
0.00 00 00 60 00 006 06 00 00 60 00 0006
e e e e
W M. . W W W. W W W W W W W
05606 0660656 .68 06606xm .69 60000 006600 0 0666666
006u,0006

0006I0006 madmfi 6¢ZOHB<ZMMBZH 60 mmXMQZH “<0Hm 49000
0.0 MAm<B

203

 

.66666 6660502 656006
66000 00 00660606606 0666666
106660630 0606 00660 6066056 66666 60 00669 6060606

 

.066 .60006 0602 .0006 0000 0606 066

 

.0066 06000 06 6066600 00000 “00-006 .60006 .0006 0600 mmma 0066
.000600 0 60660606606 00 6660600 606000666 "A0006 .606
.6066D 66066056 666 “0006600

 

 

 

 

 

 

 

 

 

 

0.006 60.00 0.006 00.06 0.006 mm.mm 06606x0 60606

0.m + 0. mm. 6. 66. 6.6 66.6 06603 066 60 6006
0.6 + 6.6 mm.m m.m 0m.6 m.m mm.6 0066066 06606
m. I 0. mm. 1. I: m. om. 00606
6.0 + 0.66 66.0 0.6 60.0 m.0 mm.m 006660000 00060606 60660
6.6 + 0.6 00. I: II 6. 00. 5000666 006666
0.6m+ 0.06 mm.06 6.0m NN.6~ 0. 6m. 6005600
0.6 . m.6 06.6 m.m 66.6 0.m 06.6 000000
6.00: 0.06 om.0m 0.0m 00.66 0.06 06.66 006060 006606
006660

6000 6000 6000 6000

05 m 05

606 606 6 > 606 66> 606 0666> 606666666066
0006 660666660000
uom06 0606 mm06 om06

 

0606600 60 00066662

0006 .0006 .0006 09606Xm 60 ZOHEfiZHEme 6<UHE6<MUOmO "QUHM 69000
6.0 66m¢8

 

204

Since 92.4 per cent of the value of Costa Rica's foreign
trade is purchased by industrial nations, the nation's
economy is vulnerable to economic fluctuations originating
abroad.

Table 7.5 shows the principal imports of Costa Rica by
commodity groups over the 1950—1959 period. During this
period, manufactured products accounted for 39.3 per cent
of all imports and machinery and parts (capital equipment)
for 30.3 per cent. All industrial manufactures together
represented 80 per cent of total imports during the 1950-
1959 period. Food products and fuels and lubricants repre—
sented 13.0 per cent and 6.4 per cent of total imports
respectively. Imports rose 85.7 per cent from 1950 to 1959
and at a very constant rate (see Table 7.3). This, of
course, is normal in a country which requires capital and
other imports for economic expansion. Export prices rose
steadily from 88 in 1950 to 106 in 1958 and 1959.

As a result of the Industrial Encouragement Law of
1959, imports of manufactured goods will likely decline
because more of these will be produced internally. This
law encourages industrial production to substitute for

manufactured products not produced domestically or produced

205

TABLE 7.5

COSTA RICA: TOTAL IMPORTS C.I.F. 1950—1959

Millions of Dollars

 

 

 

 

Imports 1950a 1951a 1952 1953
Food products -- -— 8.20 9.07
Beverages and tobacco —— —- .57 .69
Industrial raw materials —— —— 1.07 .57
Fuel and lubricants -- -— 4.17 4.47
Vegetable oils and lard —— -- .46 .42
Chemicals -- -— 10.73 9.63
Manufactured products ~
(classified) —— —— 22.79 24.79
Machinery and parts -- -- 13.13 16.37
Other manufactured
products -— -- 6.21 6.94
Other merchandise -— -_ .54 .72

Live animals and other
transactions

Total imports . . . . 46.03 55.74 67.87 73.67

_/

 

 

Source: Banco Central de Costa Rica, Balanza de Pagos d__,e
COSta Rica Afio 195_9: 0ndecimo Reporte Anual, (San José. 1960)

15; and Sexta Hemoria Anual. Afio 1955 (San José, March 1956)
121.

 

_ ~..I - -
\ l '
. ‘ . . . t)
.. ...- -.. ‘
. .s

206

 

 

 

1952— Per
1954 1955 1956 1957 1958 1959 Cent
1959

1952-

59
10.04 11.81 14.35 11.37 11.79 15.29 91.92 13.03
.73 .69 .75 .74 .80 .93 5.90 .83
.68 .70 .69 .57 .57 .57 5.42 .77
5.44 5.27 5.87 7.20 6.81 6.03 45.26 6.41
.56 .54 .56 .63 .55 .54 4.26 .60
11.54 13.23 13.42 16.34 15.20 15.66 105.75 14.99
24.48 24.78 25.73 30.61 30.55 29.71 213.44 30.25
18.67 23.19 22.10 27.29 24.80 26.14 171.69 24.33
7.93 7.12 7.64 7.89 8.02 7.78 59.53 8.44
58 14 -- -- .23 -- 2.21 .31
-- -- .12 .14 -- .01 .27 .04
80.65 87.47 91.23 102.78 99.32 102.66 705.65 100.00

 

 

 

 

 

aThe system of import classification used for these two

years does not correspond with the one followed since 1952.

 

207

in quantities satisfying less than ten per cent of domes-

tic consumption.

Table 7.6 shows the balance of trade and the balance

of payments of Costa Rica during the 1950-1955 period.
Costa Rica's balance of trade showed surpluses from 1950
to 1955 but deficits were recorded from 1956 to 1959

except for a small surplus of 3.0 million dollars in 1958.

Considering the period as a whole, Costa Rica had a balance

of trade surplus. Likewise, during the 1950—1959 period,

there was a net surplus in the balance of payments. How-

ever, balance of payments deficits were realized in 1950,

1954 and 1956 and 1959.
The capacity of the Costa Rican economy to import dur-

ing the 1950—1959 period was generally unfavorable. The

terms of trade shown in the last column of Table 7.3

improved from 76.9 in 1950 to a high of 108.2 in 1954 and

declined to 103.8 in 1955. From 1955 to 1959, the terms of

trade have been unfavorable to Costa Rica, except in 1958.

In general, over the 1950-1959 period, Costa Rica benefited

from favorable terms of trade only in 1954, 1955 and 1958,

but, on the average, unfavorable terms of trade were

prevalent.

208

To summarize, we note that agriculture was successful
in providing an increasing volume of exports which con-

tributed to the expanded demand for imports for indus-

trialization. International price movements were helpful

earlyin.the decade but moved in an opposite direction late

international price movements helped

in the decade. Thus,

prevent agriculture from playing as large a role in the

external balance as was desired.

TABLE 7.6

COSTA RICA: BALANCE OF TRADE AND BALANCE
OF PAYMENTS 1950-1959

Millions of Dollars

 

 

 

Year Exportsa Importsa Balance Balance of
of Trade Payments
1950 56.3 41.1 +15.2 -l.l
1951 61.2 47.7 +13.5 +4.3
1952 72.1 59.2 +12.9 +6.8
1953 79.4 64.8 +14.6 +3.0
1954 85.7 71.8 +13.9 -2.3
1955 80.7 77.7 + 3.0 +3.1
1956 64.7 81.6 -l6.9 -8.1
1957 82.7 92.0 - 9.3 +2.1
1958 93.1 88.9 + 4.2 +9.4
1959 76.0 93.5 -1 .5 ~4.0

 

 

Source: International Monetary Fund, Balance of Pay~
1955—1959 and Vol. 9, 1950-1954.

ments Yearbook, Vol. 12.
aValues adjusted by the IMF.

209

During the 1950—1959 period there were no major changes

in commercial policy. Balance of payments difficulties

from 1948 to 1950 compelled the Central Bank to legalize

the free market exchange rate in 1950. From 1950 to 1951

a surcharge was added to the preferred rate of 5.60 and

the surcharges on the free rate were raised to 9.27 for

most free market transactions and 11.82 for others. In

1952 the free rate was stabilized at a level of 6.65

colones per dollar. The free market rate remained at this

level throughout 1950-1959. From 1952 until 1959, the

following official exchange rates were in effect: 5.60 for

all exports except those authorized to at mixing rates,

such as cocoa beans, cocoa products, and raw cotton whose

rate is 6.62; 5.67 for import goods considered most essen-
tial to the Costa Rican economy (about 50 per cent of all
imports); and 6.65 for the remaining imports.

The 1959 difficulties appear to have continued into
1960 and 1961.

Differential exchange rates have been the only domestic
policies used to stabilize export proceeds. Given the

importance of coffee exports to the nation‘s economy, Costa

Rica has been a strong supporter and active member of the

International Coffee Agreement.

210

Summary

Costa Rica is heavily dependent on foreign trade for

its economic welfare. In fact, exports accounted for 23.4

per cent of Costa Rica's GNP and 58.3 per cent of agricul-

ture's GDP over the 1950-1959 period.

Bananas, coffee and cocoa account for 91.7% of Costa

During the 1950-1959 period, coffee

Rica's exports.

replaced bananas as the leading export. Beef is emerging

as an important export commodity while jute exports are

declining in value of importance.

The volume of exports increased 36.2 per cent from

1950 to 1959. Coffee and cocoa exports have increased

126.4 and 271.7 per cent respectively in 1959 over 1950.

Banana production decreased 37.5 per cent during the same

period mainly on account of the Panama disease. There

were, however, considerable year to year fluctuations in

the export volume of the principal commodities. Year to

year volume variations averaged 10.6 per cent over the

period. In general, Costa Rica experienced rising prices

for its exports from 1950 to 1957 and then a sharp decline

in 1958 and 1959. This price decline is not only due to

a drop in coffee prices but also to a drop in banana prices

211

during these two years. Export prices showed an average
yearly variation of 9.6 per cent. Year to year variations
in export proceeds over the 1950—1959 period averaged 10.6
per cent.

Imports are increasing at a faster and more constant
rate than exports; they have increased 85.7 per cent from
1950 to 1959 (exports 36.2). This very rapid rate of in—
crease of imports has placed a considerable burden on the
balance of trade situation, especially since 1955. Manu-
factured products accounted for 63 per cent of total
imports, food products 13.0 per cent and fuels and lubri-
cants 6.4 per cent.

Costa Rican exports have been generally successful in
paying for its imports and the balance of trade over the
1950-1959 period has been a net surplus. Balance of pay-
ments conditions have been generally favorable to Costa
Rica although deficits were realized in 1950, 1954, 1956 and
1959. Since 1959 the situation has been less favorable.

During the period under study there was no major change
made in Costa Rican commercial policy. Since 1952 the
exchange rate remained at 5.60 for exports and 5.67 for

imports considered most essential to the Costa Rican economy

212

(approximately 50 per cent of all imports) and 6.65 for

the remaining imports. Free market exchange rate fluctu-

ated about 6.65.

Aside from differential exchange rates, no other poli-
cies have been undertaken to stabilize export proceeds.
With respect to international price stabilization policies,

Costa Rica was an active member and supporter of the

International Coffee Agreement.

CHAPTE R VI I I
SUMMARY

Primary producers are often confronted with two main
problems in their relations with industrial countries: first,
instability of export proceeds on account of price insta—
bility of primary products and second, a relative decrease
in the capacity to import due to the deterioration of their
terms of trade. Industrialization has frequently been sug-
gested as the structural solution to both of these problems
affecting the external balance of primary producers. Indus—
trialization, however, is a long-run process which does not
offer an immediate solution to the price instability prob—
lem. A number of national and international policies and
programs are now being used to counteract price instabilities
of primary products. Many others have been proposed. Which
ever policy is advocated, in order for it to be beneficial
to both producers and consumers, the stabilized price should
not interfere with long—run price shifts. Finally, price
instability is not an argument to stay out of a given line
of production. 0n the contrary, price instability merely

requires that the discounted average expected net returns

213

214

in primary production be compared with alternative produc—
tion possibilities. When this allowance is taken into
consideration, it is often wise for a nation to continue
placing a high priority on producing primary products in
order to earn foreign exchange.

Industrialization has often been suggested as the
solution to the deteriorating terms of trade problem. In
order to maintain the capacity to import, to increase
employment and to prevent relative income transfers to
industrial countries, it has been frequently advocated
that primary producers (especially in Latin America) accel—
erate industrialization. Over the past ten years, an
increasing number of Latin American countries have con-
centrated scarce human and financial resources on import
replacing industrialization programs at the expense of
agricultural and other primary production. According to
one economist, Gerald Meier, the results of such indus-
trialization policies in Latin America in recent years have
been higher prices, failure to absorb labor surpluses,
failure to allow the highest possible net savings of
imports, excess industrial capacity and, in some cases, the

establishment of industries with heavy import requirements.

215

Moreover, the neglect of agriculture and other primary
production has often resulted in stagnant rates of growth
in these activities and food shortages which, in many
instances, have had to be met by agricultural imports. To
overcome these numerous difficulties, it has been suggested
by some economists that Latin American countries should
expand their output of food and primary products and place
less emphasis on import replacing industries.

Agricultural exports can contribute to the external
balance of a nation by paying for capital imports required
for economic development. Agriculture also can make two
important contributions to the internal growth of a nation.
First, agriculture must provide increased food supplies for
higher incomes and a growing population. Second, agriculture
is an important source of revenue for capital formation
required for general economic development. Moreover, agri-
culture can provide the labor force required by other ex—
panding sectors, as well as serving as a market for indus—
trial products.

Costa Rica is a small underdeveloped nation of 1.12
million people. As is characteristic of most underdeveloped

countries, it relies heavily on agricultural export proceeds

216

and industrial imports for its economic welfare and devel-
opment. Costa Rica is,therefore, subject to and affected
by instabilities of international markets. In addition,
the terms of trade affect Costa Rica's pace of development.
Moreover, being primarily an agricultural country, agri-
culture plays an important role in the external balance and
internal growth of Costa Rica.

The population of Costa Rica is largely of European
extraction and is characterized by its homogeneity. Levels
of illiteracy are among the lowest in Latin America. The
population of Costa Rica is growing at a rate of 3.87 per
cent per year. This makes Costa Rica one of the fastest
growing countries in the world. Costa Rica is largely a
rural country with 66.5 per cent of its population and 55
per cent of its labor force in the rural sector. Only one-
third of the Costa Rican population is economically active
and must support the remaining two—thirds of the population.
0f the total economically active population, 54.7 per cent
is engaged in agriculture, 10.9 per cent in manufacturing,
14.7 per cent in services, and the balance in other activities.

The 1940-1950 performance of the Costa Rican economy has

been covered by the 1952 Twentiety Century Fund study headed

217

by Stacy May. The recommendations of this Study Group
after six weeks of investigation were to expand the pro-
duction of domestically produced foodstuffs, to expand and
diversify exports, to encourage savings and channel them
into agricultural improvements, processing and light manu-
facturing industries, to draft a general development plan
and to establish a better system of economic reporting and
statistics as guides for planning and development.

Since agriculture is the major industry in Costa Rica
and plays an important role in determining the general level
of welfare of the country, the purpose of this thesis was to
appraise agriculture's contribution to internal growth and
external balance of the Costa Rican economy during the 1950-
1959 period.

Modern economic statistics for the Costa Rican economy
were not available until 1956, when national income accounts
were first published beginning with 1950. These aggregate
statistics for the period 1950-1959 and the shortcomings and
limitations of national income accounts were pointed out in
Chapter V. The Costa Rican national income, gross national
product and gross domestic product showed almost a twofold

increase from 1950 to 1959, which indicates that the economy

218

grew at a very rapid rate. For the purpose of determining
annual rates of growth, seven different methods were dis—
cussed in Chapter IV, and six methods were used to compute
the annual growth rate of the Costa Rican economy. All
methods yielded almost identical rates for the ten-year
period considered. However, it is recommended that method
five is best suited to be used in underdeveloped countries
because of its statistical accuracy and its ease of calcu-
lation. Using method five, it was calculated that the annual
rate of growth of Costa Rica's gross national product was
8.00 per cent, gross national income 7.53 and gross domes-
tic product 7.06 per cent at constant prices during the 1950-
1959 period. The gross national product in current prices
by economic sectors showed manufacturing growing at a rate
of 7.58 per cent per year while agriculture only grew at an
annual rate of 4.28 per cent. Government and government
enterprises experienced the fastest rates of growth of all
sectors.

This period of rapid economic growth was accompanied by
fairly successful fiscal and monetary policies designed to
encourage economic development. Three important laws were

enacted in 1959; two of them were designed to encourage

219

investment and development of mining and import substitu—
ting industries. The third law pertains to the general
development of the country but places emphasis on the
development of the agricultural sector.

Since the agricultural sector experienced the slowest
rate of growth of production of all sectors of the Costa
Rican economy (4.28 per cent) during the 1950-1959 period,
an attempt was made to explore the performance and char-
acteristics of Costa Rica‘s agriculture as well as some
specific institutions directly responsible for agricultural
development.

The latest Census of Agriculture (1955) indicates that
Costa Rica has 47,286 farms covering a total area of 2.65
million manzanas (4.5 million acres). The land in farms
(including farm wood lots) represents 36.4 per cent of the
Costa Rican territory. A total of 260,736 manzanas were
brought into cultivation from 1950-1955. There still re-
mains a large acreage of idle land which could be brought
into production. It was estimated in the early 1950's that
an additional 27 per cent of the land in forests could be
utilized for agricultural production.

Costa Rica is a country of small agricultural producers;

220

in 1955, 60.3 per cent of all farms were 19 manzanas (32.3
acres) or less, and account for 7.4 per cent of the farm
land. However, in 1955, 0.1 per cent of all farms or 50
farms comprised 21.0 per cent of all farm land. These

figures suggest the presence of minifundio as well as lati-

 

fundio type of ownership. In 1955, 75.5 per cent of all
farms, and 88.9 per cent of the total agricultural land
in Costa Rica was being used by their legal owners.

Costa Rican agriculture is characterized by limited
diversification. In 1955, 14 commodities (ten principal
crops plus livestock, milk, swine and lumber) were respon—
sible for 92 per cent of the total value of agricultural
production. Coffee, bananas, and cocoa which are produced
for exportation accounted for 53.4 per cent of the total
value of agricultural production. In 1955, 47.1 per cent
of the total volume of agricultural production was exported
and 62.8 per cent was domestically consumed.

During the 1950-1959 period there was a considerable
increase in the volume of production of principal crops
(with the exception of beans and bananas) and livestock.
Indexes of production (1950 = 100) show bananas have de~

creased 11.3 per cent while coffee production rose 138.2

221

per cent, sugar cane, 93 per cent; corn, 31.9 per cent; and
rice, 15.8 per cent. However, these increases in production
were accompanied by increases in the area planted. Corre-
sponding indexes for crop land show the following increases

in area planted: bananas, 5.1 per cent; coffee, 49 per

; -. z" '1
.‘l
b
..

cent; sugar cane, 52.2 per cent; corn, 15 per cent; beans,
13.1 per cent; and rice, 16.6 per cent. Coffee, sugar cane,

and corn had a larger proportional increase in output

 

relative to area planted; beans and rice experienced a
decrease in production per manzana. This evidence shows
there has been a sharp rise in coffee and sugar productivity
while beans and rice reflect a decline in productivity per
manzana.

Animal and animal products expanded very rapidly.
During 1950—1959, livestock numbers rose 80 per cent and
milk production 43 per cent. Swine production remained
essentially unchanged during this period.

The gross domestic product of agriculture (in constant
prices) experienced an annual rate of growth of 4.55 per
cent over the 1950—1959 period. With per capita income
growing at an annual rate of 3.66 per cent and assuming

an income elasticity of demand for food of 0.5, the annual

222

growth of demand for food would be 5.7 per cent. Judging
from these growth rates, agriculture has apparently been
unable to satisfy the increased demand for food. Two
principal propositions may help to explain this phenomenon.
First, since national income data do not include non-market
agricultural output, and this output may be substantial in
Costa Rica, gross domestic product may have underestimated
agriculture's output. Second. the income distribution

may be such that rising incomes may have benefited only a
small sector of the population and therefore, have not
induced a proportional increase in demand for food. Thus,
on one hand, the actual rate of growth of agricultural
supplies in Costa Rica may have been higher than the one
shown by agriculture's gross domestic product; on the other
hand, the actual rate of increase of demand for food in-
duced by higher incomes may have been lower than the
"required” theoretical rate. The discrepancy between
agricultural supply and demand growth rates was partially
filled by food imports. Increased food imports do not
necessarily mean a failure of agriculture to cope with
demand increases induced by higher incomes and population

growth. The dualism of the agricultural sector in Costa

223

Rica (and other underdeveloped countries), allows agricul-
ture to fail to meet food requirements while agricultural
exports pay for food imports. This is discussed further
below.

Costa Rican agriculture seems to have fallen short of
satisfying internal demand for food, as can be deduced from
the increase in food imports. However, the relative sta—
bility of food imports, both as a percentage of total
imports (11.0 - 15.7 per cent) and as a percentage of
agriculture's gross domestic product (7.1 — 9.8 per cent)
indicate that agriculture's position in coping with internal
demand may not have improved but at least it has not
deteriorated. Moreover, as will be pointed out later,
indexes of agricultural exports and balance of trade con-
ditions reveal that agriculture has succeeded not only in
paying for the rise in food imports but also for non-
agricultural imports during the 1950-1959 period. Whole-
sale and retail price indexes indicate a considerable de-
gree of price stability in the Costa Rican economy over the
1950-1959 period. The cost of living index rose from 100.0
in 1952 to 113.4 in 1959 or a rise of 1.42 per cent per

year. The food component of the cost of living index rose

224

from 100.0 in 1952 to 114.9 in 1959 or a rise of 1.47 per
cent per year. These figures indicate that, unlike other
Latin American countries, Costa Rica has not experienced
sharp price increases caused by unsatisfied demand for
food products. ‘Annual price increases have not only been
moderate but also could be said to be "normal" in an econ-
omy which is growing at a rate of eight per cent per year.

Costa Rica's economy is highly dependent on foreign
trade. Exports accounted for 23.4 per cent of Costa Rica's
gross national product during the 1950-1959 period. Over
the same period, at least 95.2 per cent of the country's
exports were agricultural products, and coffee and bananas
accounted for 91.7 per cent of total exports. Exports con—
stituted 58.3 per cent of agriculture's gross domestic pro-
duct. Cocoa, jute and livestock and beef exports represented
6.1, 2.0 and 1.5 per cent of total exports respectively.
Exports represented 58.3 per cent of agriculture's gross
domestic product during the 1950—1959 period. The figures
presented above point out the importance of agricultural
exports in the level of welfare of the country. Instabilities
in export prices have exerted a great impact on the Costa

Rican economy in the latter part of the 1950's. More

225

specifically, economic fluctuations in Costa Rica are tied
to prices of coffee and banana exports. However, fluctua-
tions in coffee prices exert greater repercussions on the
over—all economy than fluctuations in banana prices. The
reason for this lies in the difference in organization of
production of the coffee and banana inauStries. The coffee
industry is entirely owned and operated by Costa Ricans;
and a great proportion of the coffee output is produced in
small farms. A total of 67 per cent of coffee was produced
on farms of less than 184 acres in size in 1955. Conversely,
the banana industry is in the hands of the United Fruit
Company which markets 98.4 per cent of Costa Rica's bananas
(and 37.5 per cent of total Costa Rican exports). Under the
present contract between the United Fruit Company and the
Costa Rican government, the former can subtract profits,
imports and capital depreciation allowances from its export
earnings. Therefore, all foreign exchange originating from
coffee exports and only a certain percentage of the foreign
exchange from bananas (approximately 45 per cent)return to
the country. Thus, a relative change in the price of banana
exports has less impact on export earnings than a similar

price change in coffee exports. Moreover, since the total

226

value of coffee exports (at constant prices) is greater
than that of bananas, fluctuations in coffee prices will
have more of an impact on the Costa Rican economy than
equivalent changes in banana prices. Finally, since a
larger proportion of the population is dependent either
directly or indirectly on the coffee industry, price
changes in coffee exports affect a larger proportion of
the population than would export price changes of bananas.

Coffee exports increased 126.4 per cent from 1950 to
1959; however, year to year variations in volume averaged
20.0 per cent during the period. Rising coffee prices
benefited Costa Rica from 1950 to 1957; however, from 1957
to 1959 coffee prices dropped 44 per cent (while volume
increased 59 per cent). Year to year variations averaged
14.0 per cent.

Banana exports declined 36 per cent during the period.
Banana prices increased fairly constantly from 1950 to
1956 and declined rapidly from 1956 to 1959. Year to year
banana price and volume fluctuations averaged 4.33 and 13.1
per cent respectively.

The total volume of exports increased 36.2 per cent

from 1950-1959. Year to year variations in volume averaged

227

13.2 per cent during this period. Export prices rose
fairly steadily from 1950 until 1957 and declined sharply
from 1957 to 1959. The value total of exports rose from
55.6 million dollars in 1950 to 84.7 million dollars in
1954, declined to 67.4 million in 1959 and rose to an all-
time high of 91.9 million in 1958. In 1959 exports dropped
to 76.7 million.

The volume of imports rose 85.7 per cent from 1950 to
1959; import prices rose 20 per cent during the same
period. The terms of trade were, on the average, unfavor—
able to Costa Rica during this period, having benefited
Costa Rica only in 1954-1955 and 1958.

During the 1950-1959 period, Costa Rica had a net
balance of trade and balance of payments surplus, although
sporadic deficits were realized in some years. These
deficits were financed mainly from accumulated reserves.

Price instabilities have not caused serious damage to
the external balance of the economy during the period,
1950—1959. No major changes were made in commercial policy
during the period. Moreover, Costa Rican agriculture was
fairly successful in paying for the increasing volume of

food and non~food imports. This success, however, was

228

accompanied by favorable export prices during the first
part of the 1950's. The period following 1957 was marked
by the declining international price of coffee and increas—
ing stress on the external balance of the Costa Rican econ-
omy. This situation was only partially remedied by parti—
cipation in the International Coffee Agreement.

Rising food imports are sometimes viewed with unwar-
ranted alarm. Costa Rica, for example, has a comparative
advantage in producing crops such as coffee and bananas and
importing certain food such as cereals and cereal products.
In order to satisfy the rising incomes and population growth
during the 1950's, Costa Rica expanded coffee exports and
increased food imports. All food imports, however, in—
creased by only $7 million over the 1950-1959 period while
coffee exports were $23 million higher at the end of the
period than in the beginning.

Sharp gains in productivity were recorded in coffee and
sugar cane production while production of beans, rice and
corn for the indigeneous market was unimpressive. There-
fore, in Costa Rica‘s dualistic economy, productivity gains
have been centered in the coffee sector and not in crops

produced for the domestic market.

229

Costa Rica has relied on a moderate rise in food im-
ports and effective stabilization policies of the National
Production Council to maintain food price stability.

In general, the 1950-1959 decade was a period of over-
all high rates of growth-—8 per cent per annum-—rising
incomes, political harmony and a stable general price level

including stable food prices.

APPENDIX

230

231

.mmmmoo compo mo .mQH OHH wawumfiflxoummm H mmmcmw moom

 

.m .SmmumowEHz .mmmfllomma amoflm muwou mp mflumsummmuo< GOHUUSUOHm ma munom moumm

 

 

 

woammfiooaum .«oHEm mm mm oumwoum .mfinwomsmw m mnouasoflumm mo Oaumumflaflz "mousom
mmm.osv Ham.mom 0mm.oan.a woo.HHN.H .mmn.aoo.a mmH.Hmm.mH mmma
www.mmm ham.m©m mom.mmw.H noo.onm mmo.m¢m mom.mnm.ma mmma
Hmo.mam mvm.N¢m mom.¢om.a www.mon m@0.mm@ mnw.©ma.aa nmma
05H.Hov ©H®.owa me.mom www.mmm mvN.mm¢ mmm.hm¢.ma omma
mum.m>m mom.6mm 6mm.hao.a wom.h¢© mmm.am© mna.mmm.ma mmma
mom.ov© oma.omm owh.mvn.a me.¢ao omm.mo¢ VmH.nmm.mH 6mma
mmm.vmm www.6hm oma.mm¢.a vm©.¢mm mmm.©m© Hmo.mom.ma mmma
mmh.mam 0mm.m©m oao.mmm.a mmm.mmm www.mav www.mam.aa mmma
Hmm.¢mm www.mam mom.voo.m omm.©am mmm.vmm mmh.mam.oa Hmma
VmN.HHv moo.mmm Hom.©mm.a mom.hm© hmm.mv¢ mm¢.aom.¢a omma
maou
.mQH OOH .mQH 00H .mQH 00H mcoe wwmmou mwzocom Iflumm
moflm mommm GHOU mono ummom m mcmcmm om¢

 

 

mmlomma ZOHBUDQOmm qmmDBQDUHm0< m0 HZDAO> uflva <BmOU

H mqm¢8 NHQmem<

232

APPENDIX TABLE II

COSTA RICA: VOLUME OF ANIMAL PRODUCTION 1950-1959

 

 

 

Numbers

Afio Milk,
Agricola Livestock Swine Poultry Egggllég
perAday

1950 607,857 112,156 875,026 361,290
1951 684,887 109,635 ------- 621,555
1952 . 656,836 120,072 857,400 428,729
1953 695,913 103,094 877,650 473,735
1954 761,661 114,511 983,974 575,157
1955 705,172 102,284 1,738,710 378,248
1956 954,212 94,557 1,277,107 489,764
1957 894,202 113,877 ------- 493,596
1958 930,767 120,240 ------- 456,067
1959 1,095,017 140,082 ------- 517,395

Source: Ministerio de Agricultura y Ganaderia, Pro-

yeto 36 de STICA, Principales Datos Sobre la Produccion
AgrOpecuaria de Costa Rica, 1950-1959, Mimeograph, 3.

a
A botella equals .67 centiliters or 1.5 pounds.

233

 

 

 

 

 

.m .QmmumomEHE .mmmatomma .moam mumou mp mahmsommonfi coHoosooum ma muflom mouma
mmammaucaum .duHBm mp om owwmoum .maumpmamw % muouaooflum¢ mp oflumumaaflz "mousom

In mmo.om «No.66 mm6.om mmm.mv HAH.¢QH 6mm.mm mmma
In mom.mm mmn.mm www.mm Hom.hm moa.mm mom.vm mmma
.. moa.ae amv.om mmm.mm amm.om oaa.mm mem.om 6mma
I- 606.4m www.mv omm.as mmm.am 6mm.am mmm.mm omma
mmv.©om.a 5mm.om mmm.nv mwv.an mmm.nm vhm.ow Ohm.mm mmma
In mmw.mm mum.om mmm.noa mmo.¢m mow.mh 0mm.¢m vmma
Ii oom.a¢ 6mm.w¢ mmo.Hm 6mm.mm mmn.om wam.mm mmma
II omo.ov mmm.©v mmo.hm mmm.¢m mmv.mh 0mm.6m mmma
II wom.m¢ mmm.mm www.0h omm.mm 6mm.¢n mwm.am Hmma
www.mom mmm.mm mm¢.mm mam.mh ¢H¢.wm 0mm.mo mom.mm omma
maoo

mcmu
mwouw 00am msmwm CHOU powwow momsmm Ifiumm

. Hmmsm
0&4

mwuom h.a u mmawusmz

mmlomma mmomo A<mHUZHmm OB QmBZ<Qm QZ¢Q uflva ¢BmOU
HHH mqm<fi XHDmem4

SELECTED BIBLIOGRAPHY

Books

Belshaw, Horace. Agricultural Credit in Economically
Underdeveloped Countries. Rome: United Nations, Food
and Agriculture Organization, 1959.

Croxton, F. E. and Cowden, D. J. Applied General Statistics.

2nd ed.; Englewood Cliffs, N.J.: Prentice—Hall,

Inc.,
1956.

Echeverria, Luis. Resena Cronologica de las Cajas de

Credito Aqricola del Banco Internacional de Costa Rica
1914—36py de las Juntas Rurales de Credito Agricola del
Banco Nacionalo Costa Rica 1937—1957 (San José, 1958).

Ellis, Howard S. (ed.). Economic Development for Latin
America. New York: Saint Martin's Press, 1961.

Facio, Rodrigo. La Moneda y la Banca Central en Costa Rica.
Mexico: Fondo de Cultura Economica, 1947.

Facio, Rodrigo. Planificacion Economica en Regimen Demo-
cratico. San José, Costa Rica, 1959.

Fernandez Guardia, Ricardo. Cartilla Historica de Costa
Rica. 33d ed.; San José: Imprenta Lehmann, 1960.

Glover, James W. Tables of Applied Mathematics in Finance,
Insurance and Statistics. Ann Arbor, 1923.

Higgins, Benjamin. Economic Development. New York: W. W.
Norton and Co., 1960.

Kuznets, Simon, Moore, Wilbert E. and Spengler, Joseph J.

(eds.). Economic GrowtthBrazilpIndiaL Japan. Durham,
N.D.: Duke University Press, 1955.

May, Stacy and Plaza, Galo. La United Fruit Company en

America Latina. New York: National Planning Asso—
ciation, 1958.

234

235

May, Stacy et a1. Costa Rica: A Study in Economic Devel-
opment. New York: The Twentieth Century Fund, 1952.

Okun, Bernard and Richardson, Richard W. Studies in

Economic Development. New York: Holt, Rinehart and
Winston, Inc., 1962.

Robinson, E. A. G. (ed.). Economic Consequences of the

Size of Nations. New York: Saint Martin's Press, Inc
1960 o

' I

Ruggles, Richard and Ruggles, Nancy D. National Income

Accounts and Income Analysis. New York: McGraw-Hill
Bodk Company, Inc., 1956.

Viner, Jacob. International Trade and Economic Develop-
ment. Glencoe, Illinois, 1952.

Wallich, Henry C. Monetagy Problems of an Expprt Economy.

Boston: Harvard University Press, 1950.

Articles

Adler, J. D. "Government: Trade Fluctuations and Buffer

Policies in Low Income Countries," Kyklos, Vol. XI,
1958, Fasc. 21.

Baer, Werner. "The Economics of Prebisch and ECLA,"

Economic Development and Cultural Change, Vol. XI,

No.
2 (Jan. 1962).

Bauer, P. T. and Paish, F. W. "Comment: Trade Fluctuations

and Buffer Policies in Low Income Countries," Kyklos,
Vol. XI, 1958, Fasc. 2.

Bye, Maurice. "Comment: Trade Fluctuations and Buffer

Policies in Low Income Countries," Kyklos, Vol. XI,
1958, Fasc. 2.

Ellsworth, P. J. "The Terms of Trade Between Primary Pro—
ducing and Industrial Countries,"

Inter—American Eco-
nomic Affairs, Vol. X, No.

1 (Summer, 1956).

236

Haberler, Gottfried. "Critical Observations on Some Cur—
rent Notions in the Theory of Economic Development,"
L'industria, No. 2, 1957.

Haberler, Gottfried. "International Trade and Economic

Development," Fiftieth Anniversary Commemoration Lec-
tures. Cairo: National Bank of Egypt, 1959.

Johnston, B. F., and Meller, J. W. ”The Role of Agricul—
ture in Economic Development," American Economic Review,
Vol. LI, September 1961.

Kindleberger, C. P. "The Terms of Trade and Economic

Development," The Review of Economics and Statistics,
Supplement, Feb. 1958.

Kuznets, Simon. "Economic Growth and the Contribution of

 

 

Agriculture: Notes on Measurement," International
Journal of Agrarian Affairs, Vol. III, No. 2 (April
1961).

Kuznets, Simon. "Some Conceptual Problems of Measurement,"

Economic Development and Cultural Change, Vol. IV,
No. 4 (October 1956).

"Latin America: A Decade of Decision," Population Bulletin,
Vol. XVII, No. 2 (April, 1961).

Lewis, Arthur W. "Education and Economic Development,"
Social and Economic Studies, Vol. X (June 1961).

Meier, Gerald M. "Export Stimulation, Import Substitution
and Latin American Development," Social and Economic
Studies, Vol. X, No. 1 (March, 1961).

Morgan, Theodore. "Comment: Some Interrelationships Be-
tween Agricultural Trade and Economic Development,"
Boris C. Swerling, Paper presented at a Social Science

Research Council Meeting at Stanford University, Nov.,
1960.

Nurkse, Ragnar. "Trade Fluctuations and Buffer Policies of
Low Income Countries," Kyklos, Vol. XI, 1958, Fasc. 2.

237

Perez Fajarola, Juan.

"Caracteristicas Educacionales de

Nuestra Poblacion," Atlas Estadistico de Costa Rica,

Direccion General de Estadistica y Censo.

1953.

Pesek, Boris P.

Economic Development and Cultural Change,

No. 3 (April 1961).

Prebisch, Paul.

San José,

"Economic Growth and Its Measurement,"

Vol. IX,

"Commercial Policies in Underdeveloped

 

 

Countries," American Economic Review, Papers and Pro—
ceedings, May, 1959.
Schultz, T. W. "Investment in Human Capital," American

Economic Review, Vol. LI,

 

Singer, Hans.

ing and Borrowing Countries,‘
Review, Papers and Proceedings,

No. 1

(March 1961).

"The Distribution of Gains Between Invest-

American Economic
May, 1950.

Official Publications

Banco Central de Costa Rica.

RicaL_l959, Undecimo Reporte Anual, San José,

 

Banco Central de Costa Rica.
1959, San José,

Banco Central de Costa Rica.
de Costa Rica, 1950,

 

Banco Central de Costa Rica.
de Costa RicaL.l950-l958,

Banco Central de Costa Rica.
de Costa RicaJ 1955-1959,

 

Banco Nacional de Costa Rica.
Agricola.
Noviembre 1955, Mimeo.

Mayo 1960.

San Jose,

Balanzade Pagps de Costa
1960.

Decima Memoria Anual, Afio

Ingreso y Producto Nacionales
1956.

Ingreso y Producto Nacionales
San José, Diciembre, 1959.

Ingreso y Producto Nacionales
San José, Febrero 1961.

Juntas Rurales de Credito

Clasificacion de Creditos, San José,

238

Banco Central de Costa Rica. Sexta Memoria Anual, Ano
1955, San José, Marzo, 1956.

 

Banco Central de Costa Rica. Valor Global de la Produccion

 

Agropecuaria de Costa Rica en el Afio 1955, San Jose,
1950, Mimeo.

 

Banco Central de Costa Rica. Valor Global de la Produccion
Agropecuaria de Costa Rica en el Afio 1955, San Jose,
1959, Mimeo.

 

Consejo Nacional de Produccion. Fundamentos y Otros de
los Expendios y Almacenes de Consejo Nacional de Pro—
duccion, San José, 1961, Mimeo.

 

 

Direccion General de Estadistica y Censos. Anvario Esta—
distico de Costa Rica 1959, San José, 1960.

 

 

Direccion General de Estadistica y Censos. Areas Demo-
graficas de Costa Rica, San José, 1959.

 

Direccion General de Estadistica y Censos. Censo Agro—
pecuario de 1955, San José, 1959.

 

 

Direccion General de Estadistica y Censo. Atlas Esta—
distico de Costa Rica, San José, 1954.

 

 

Direccion General de Estadistica y Censo. Censo Agro-
pecuario de 1950, San José, 1953.

 

 

International Monetary Fund. International Financial
Statistics, September 1956 and April 1961.

 

Ley Organica de Consejo Nacional de Produccion. San
José: Imprenta Nacional, 1956.

Ministerio de Agricultura y Ganaderia, Proyecto No. 36
de Stica. Principales Datos Sobre 1a Produccion Agro-
pecuario de Costa Rica, 1950—1959, San José, undated,
Mimeo.

Pan American Union. Foreign Trade of Latin America Since
1913, Washington, 1952.

239

United Nations, Economic Commission for Latin America. Los
Recursos Humanos de Centro-America, Panama y México en
1950-1980, New York, 1960.

 

United Nations, Economic Commission for Latin America.
Economic Survey of Latin America, 1949, New York, 1951.

United Nations, Economic Commission for Latin America. The
Economic Development of Latin America and Its Principal

Problems, New York, 1950.

United Nations, Department of Economic Affairs. Instability

 

in Export Markets of Underdeveloped Countries, 1952.

United Nations, Department of Economic Affairs. Measures
for International Stabilipy, New York, 1951.

United Nations, Economic and Social Council. World Economic

 

Situation: Economic Development of Underdeveloped
Countries, 1961.

 

Universidad de Costa Rica. El Desarrollo Economico de
Costa Rica--Sector Externo, Ciudad Universitaria, 1958.

Universidad de Costa Rica. El Desarrollo Economica de
Costa Rica——Sector Agropecuario, Ciudad Universitaria,
1959.

 

United States Department of Commerce, World Trade Infor-
mation Service. Economic Developments in Costa Rica
1960I Economic Reports: part 2, No. 61-19, 1961.

 

 

(7937‘ t
SE 1.1.1.4

 

 

b ‘ *

"I111111111))!"11111