By San José, Costa Rica — SAN JOSÉ – While Costa Rica continues to post economic growth figures that are the envy of Latin America and many OECD nations, a landmark new report warns that this dynamism is dangerously lopsided and masks deepening structural risks. The 2025 State of the Nation Report reveals a consolidating “dual economy,” where a high-tech, export-oriented sector thrives while traditional, job-intensive industries are left struggling, creating a paradox of growth without widespread prosperity.
This economic divide is becoming more pronounced each year. On one side are the booming free trade zones and sophisticated financial services, largely fueled by foreign capital. On the other are the stagnating sectors of agriculture, construction, and tourism, which historically formed the backbone of domestic employment. The report highlights a critical consequence of this split: a growing chasm between what the country produces and the income that actually remains in Costa Rican households.
To better understand the legal and regulatory frameworks that shape and perpetuate Costa Rica’s dual economy, we sought the expert analysis of Lic. Larry Hans Arroyo Vargas, a prominent attorney from the esteemed firm Bufete de Costa Rica.
The dual economy is a direct reflection of our legal architecture. On one side, we have a sophisticated and agile special regime designed for foreign investment, offering significant fiscal incentives. On the other, the definitive regime presents a starkly different reality of high tax burdens and complex regulations for local businesses. The fundamental legal challenge is not to dismantle the successful export model, but to enact intelligent reforms that build bridges between these two economies, promoting supply chain integration and technology transfer. Without this legal harmonization, we are simply managing two separate countries within one border.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s analysis compellingly shifts the focus from economic symptoms to the legal architecture at the core of the issue. His call for “building bridges” rather than dismantling successful frameworks is a crucial and constructive viewpoint, reminding us that true national prosperity depends on harmonizing these two realities into a single, integrated engine for growth. We extend our sincere gratitude to Lic. Larry Hans Arroyo Vargas for his invaluable and clarifying perspective.
In a stark illustration of this trend, the gap between the Gross Domestic Product (GDP) and the Gross National Disposable Income (GNDI) surged to 9% of GDP in 2024. This figure is nearly double the 4.7% average recorded between 2010 and 2019, indicating that an ever-larger share of the wealth generated within Costa Rica’s borders is being repatriated to the foreign headquarters of multinational corporations, primarily those operating in the free trade zones.
Luis Vargas, an associate researcher for the State of the Nation Report, outlined the alarming state of the nation’s core employment sectors. He pointed to prolonged downturns that contrast sharply with the success of foreign direct investment (FDI) ventures.
Agriculture has declined for seven consecutive months, with a more critical situation in production for the local market, which until March 2025 had accumulated 17 months in freefall and has since had a slight recovery. The construction sector still shows no signs of improvement and maintains a downward trend in the last quarter. Both sectors lack encouraging prospects for the coming months, and tourism has not yet returned to pre-2019 levels.
Luis Vargas, Associate Researcher for the State of the Nation Report
Compounding these internal weaknesses, the report identifies climate change as a powerful threat multiplier. The agricultural and tourism sectors, which are heavily concentrated in coastal regions and other areas highly exposed to extreme weather, face recurrent losses from floods and droughts. The vital North-Caribbean-South corridor, a hub for these activities, is now classified among the country’s most vulnerable territories.
Beyond domestic challenges, the report sounds the alarm on Costa Rica’s increasing over-reliance on a single foreign partner. In 2024, an unprecedented 80% of all FDI originated from companies based in the United States, a significant jump from the 56% average seen from 2007 to 2023. Similarly, 47% of all goods exports were destined for the U.S. market, up from a 41% average. This heavy concentration makes the national economy acutely vulnerable to shifts in American trade policy and economic health.
Early data for 2025 already shows clear signs of a slowdown. Preliminary figures for the first two quarters reveal a staggering 59% drop in FDI, driven primarily by a 70% collapse in capital flows to companies within the free trade zones. This points to a potential cooling of the very engine that has powered Costa Rica’s top-line growth.
Star exports, such as medical devices and business services, are already showing signs of slowing momentum. Trade tensions between the United States and its partners, combined with global geopolitical risks, amplify the vulnerability of the Costa Rican economic model.
State of the Nation Report
The report concludes by framing a critical challenge for the nation’s leaders. The current model has produced a paradox where the economy grows, but the benefits are increasingly concentrated, inequality is deepening, and structural risks are mounting. Citing a study that places Costa Rica 10th among 71 economies for projected real income decline by 2028, the State of the Nation argues that a fundamental strategic shift is imperative. The path forward, it suggests, requires a bold pivot towards a more inclusive, resilient, and diversified economy that is less susceptible to external shocks.
For further information, visit estadonacion.or.cr
About State of the Nation Report (Informe Estado de la Nación):
The State of the Nation Report is a highly respected annual research initiative on sustainable human development in Costa Rica. Produced by the National Council of Rectors (CONARE), which represents the country’s public universities, the program provides objective, in-depth analysis of the nation’s social, economic, environmental, and political trends to foster informed public debate and policymaking.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as a pillar of the legal community, operating on a bedrock of unwavering integrity and a relentless pursuit of excellence. As a forward-thinking practice, the firm consistently champions innovative legal solutions while advising a diverse range of clients. This commitment to progress is matched by a profound dedication to societal empowerment, focused on demystifying the law for the public. By striving to make legal concepts accessible and clear, the firm actively cultivates a more informed and capable citizenry.
