Kathmandu University School of Management

Balkumari, Lalitpur

Case Review

Costa Rica, Guatemala and Honduras: Contrast and Prospect for convergence

Submitted to: Submitted by: Group 3, Section C

Ms. Anupama S. Pant Russal Maharjan, 18757

Visiting Faculty- Economics Nischhal Sharma, 18792

Sushant sekhar Gupta, 18732

Prasidhika Shrestha, 18798

Binupa K.C, 18745

Bikalpa Dhakal, 18725

Usha Chimariya, 18719

Date: November 27, 2019

The case shows how countries sharing similar geographic features differ from one another. Costa

Rica, Honduras and Guatemala are compared in terms of foreign finance, investment remittance,

education, and conflicts.

 What factors made Costa Rica enjoy a much better development performance, despite the fact

that Costa Rica was historically poor?

Facts on Core Issue

 Costa Rica, Guatemala and Honduras are all former Spanish colonies in Central America and

share similar features. Among these three countries, Costa Rica has been able to achieve an all

round development Costa Rica , despite the fact that Costa Rica was historically poor. It has been

able to achieve higher economic growth, higher HDI, less corruption and better governance.

There are various factors behind the all round better performance of Costa Rica. First of all,

foreign direct investments with sound domestic policies have helped Costa Rica in recent years.

Moreover, less corruption and conflict has also been a major factor behind its development.

Further, Costa Rica has a much higher proportion of expenditure on both health and education.

So these are the factors that made Costa Rica enjoy a much better development performance than

Guatemala and Honduras.

The case is basically a comparison of Costa Rica (CRI), Honduras (HND) and Guatemala

(GTM) in terms of their condition of institutions, education, health, poverty, and inequality,

foreign finance, investment, remittances, aid, and conflict. According to the case, CRI has

enjoyed much better development performance than Honduras and Guatemala. The performance

of CRI has been better than either HND or GTM because of better institutions, education,

condition in terms of inequality and also because of support from Foreign Direct Investment

(FDI)

Foreign Direct Investment (FDI)

Costa Rica (CRI) has been more successful in terms of getting FDI and implying it for its benefit

better than Honduras (HND) and Guatemala (GTM). In CRI, in recent years, foreign direct

investment (FDI) has worked for development because it has been complementary, with sound

domestic policies and investments in human capital. In between HND and GTM, the history of

FDI has been far more fraught in HND and GTM. CRI has better political conditions, growth

rates and Human Development which is why CRI has attracted more than twice the stock of

Foreign Direct Investment (FDI) than the other economies, despite its smaller population. These

FDI has gone into sectors with good potential for stimulating growth. Not only the better
education, infrastructure, environment, and ongoing economic growth performance has

contributed to CRI receiving greater FDI than other two countries but also because of CRI better

policies in terms of FDI.

Human Development Index (HDI) also supports that the performance of CRI is better than

both HND and GTM.

Human Development Index (HDI)

Data reveal sharp differences between Costa Rica, Honduras, and Guatemala in human

development levels. There are significant differences among the three countries as shown by the

three indicators of HDI i.e. Real GDP, Life Expectancy and Literacy Rate. Life expectancy in

CRI is 6 years greater than in HND and 8 years greater than in GTM. CRI has about two more

years of schooling than HND and four more than GTM. Accordingly, as per 2012 data (as

mentioned in the case), CRI is a high-HDI country (ranked No. 62), HND is medium HDI (at

No. 120); GTM at No. 133 is also medium HDI, but it is not far above low-HDI status. In terms

of GDP, GDP per capita more than quadrupled in CRI between 1950 and 2008; it less than

doubled in GTM and is just 1.75 times higher in HND. Also, CRI has a much higher proportion

of expenditures on both health and education. In 1886, CRI implemented a law mandating

universal primary education for both boys and girls, and grew from there. The primary student-

teacher ratio in CRI in 2009 was an impressive 18; but it was 28 in Guatemala and 34 in

Honduras. CRI has proceeded to build a university system that is not only of better quality but

also more equitable in its higher admissions of poorer and minority students.
Hence, in terms of all three indicators Costa Rica (CRI) outperforms both Honduras (HND)

and Guatemala (GTM) and also is performing better with each passing year.

Increase in work force supply

According to the case CRI implemented a law mandating universal primary education for both

boys and girls. In the mid 1990 CRI mandated computer science and English courses for student

as a conscious strategy to prepare for successful engagement with the rapidly opening and

evolving global economy. As the education facilities is given to the students the students become

more illegible for the work which increase labor supply of the country.
As the CRI has proceed to build a university system which was not for a better quality but also

equitable in its higher education of poorer and minority students. As the poor and minor students

enrolled in the education which broaden their knowledge and skill it will increase the work force

supply as shown in the above figure (S1-S2) which also cause raise in employment which is

shown in the figure from the point L1 to L2.

Due to the constructive education system people gets more employment opportunities and many

people get enrolled in the job from which peoples get salary. As the level of income of the

people rise living standard of people rises due to which there will be more consumption of goods

and service.

As the consumption of the people increases there will be rise in the aggregate demand of the

country due to which national income of the country also increases. Above diagram of aggregate

demand illustrate that as the consumption of the labor increases aggregate demand rise from AD

to AD2 due to which more income generate by the country and the national income of the

country rise as we can observe in the above diagram from Y to Y1.

Gini coefficient or gini index is used as a gauge of economic inequality, measuring income

distribution or, less commonly, wealth distribution among a population.the three countries that is

looked into in the case, Costa Rica, Honduras and Guatemala’s inequality are hardly low. It can

be presented in the figure below:

In the figure shown above, orange, red and green Lorenz curve represent Costa Rica, Guatemala

and Honduras respectively. The black line is the line of equality. In Costa Rica, Honduras and

Guatemala, Gini is 51, 57 and 56 respectively. Even in Costa Rica, Gini is hardly low, with a

Gini as similar to US and China, it is still comparatively lower than Honduras and Guatemala. In

Guatemala, inequality is sharply along ethnic lines, for instance HDI of indigenous people in
Guatemala is musch lower levels, similar to the low-income countries of Africa. Land inequality

and gender inequality is comparatively a smaller problem in Costa Rica than in Honduras and

Guatemala.
Solutions

1. Since there is unemployment in the country, employment opportunities should be

2. Infrastructural development should be done equally throughout the country and reliable
industrial policies such be introduced.

3. Foreign direct investment should be pushed in various development sectors like

4. Conflicts should be resolved peacefully by finding the causes and preventing them from
happening in the future.

5. Education quality should be improved with the help of proper government policies of
reducing land inequality, gender inequality and horizontal inequality in the country.

Managerial Implications

This case imparts an important managerial implication about the importance proper planning and

effective implementation of those plans as well as efficient utilization of organizational resources

for goal achievement and long term growth of an organization.

1. What better policies and strategies can be introduced and implemented by Honduras and

Guatemala for experiencing growth like Costa Rica?

2. How reduction of violent conflict in GTM has improved prospect for development there and

what role does remittance has played in HDN?

3. Why cannot Honduras and Guatemala come up with effective policies as done by Costa Rica in

terms of institutions, health and nutrition etc.?

4. Each nations history with conflict has a lot to do with where they are. Do you believe that the

level of past conflict is a factor that's predicts a nation development as shown in the case?

5. Is the similarities between these nation actually enough to compare them since each of them had

a very unique and intricate situation to deal with?

6. Is there a way Guatemala and Honduras can now catch up to Costa Rica and if so how?

7. Each nations history with conflict has a lot to do with where they are. Do you believe that the

level of past conflict is a factor that's predicts a nation development as shown in the case?

8. What can GTM and HND learn from CRI?

9. How did Costa Rica develop rapidly despite being a poor country in comparison to other two

countries in the beginning?

10. How did FDI contributed in the development of these three nations?
Honor Code

“On our honor as students, we pledge that we have neither given nor received any aid for this

assignment”

- BBA2018, Sec C, Group 3.