International Trade Theory Analysis

2.3. Rethinking the International Trade Theory

Supporters of laissez-faire consider that free trade without regulations is the best policy in all circumstances and that government interventions distort markets and reduce benefits in the whole economy. They follow the basic principles of the “invisible hand” proposed by Adam Smith in which economy is in better condition if individuals pursue their own interests. However, they sometimes failed to acknowledge Smith's recognition of the need of institutions that allow people to maximize their welfare (Lewer and Van den Berg 73). By institutions he meant such things as legal, economic, political, social, cultural and technological systems that foster income growth for the citizens (73).

For innovation

Due to its strategic location it works as a bridge between United States and South America, as well as the Atlantic and the Pacific (Cordero and Paus 5). With a US$ 10.630 GDP per capita it is considered an upper middle income country with a relatively good standard of living (“World Bank Data”). A combination of political stability, strong human development and sustainable economic growth, has resulted in a relatively low poverty rate. While 12% of the population lives under the poverty line (US$ 4), 4.7% are considered extremely poor (living with less than US$ 2.5 per day) (“World Bank Data”). Compared to the rest of the countries in the region of Latin America and the Caribbean, Costa Rica ranks higher in the majority of social and economic

However, after an import substitution program in the 1960s and 1970s, and a financial crisis in the early 1980s, it implemented an aggressive competitiveness strategy based on free trade and attraction of foreign investment as of 1985 (Cordero and Paus 2). Maintaining a large agricultural sector, Costa Rica expanded its production in technology and tourism sectors. While goods like bananas, coffee, sugar, and beef are still an important part of the country's exports, industrial commodities like medical and electronic devices have broadened trade (“Anuario Estadístico 2015”). Costa Rica, taking advantage of its biodiversity, has also promoted ecotourism as a sustainable development tool (“World Factbook”). The nation has one of the highest levels of foreign direct investment per capita in Latin America, because investors are attracted by its political stability and relatively high education level (“World Factbook”). Costa Rica is categorized as a strong democracy since its last armed conflict that led to the dissolution of its armed forces in 1949 (“World Factbook”). In addition, through a well-developed social spending system, the State has moved forward in providing almost universal access to healthcare, education and pensions (OECD