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Abstract
During the early 1980s Costa Rica experienced its worst economic crisis since World War II,
which led to the abandonment of the import substitution model of development adopted in the
1960s. This severe economic downturn also spurred the implementation of a series of new
policies supporting foreign investment in high-value-added industries and the diversification
of the nation’s exports. As a result, Costa Rica has diversified its economic activity, moved
away from its historical dependence on agricultural exports, and gained new competitive
advantages in the manufacturing sector. This study presents a straightforward generalization
of the model proposed by Herzer and Nowak-Lehnmann’s (2006) to test the hypothesis that
export diversification has influenced economic growth in Costa Rica via externalities of
learning-by-exporting and learning-by-doing. To examine whether a long-run relationship
exists between export diversification and economic growth, two types of statistical
methodologies are used: the bounds test to cointegration within a distributed lag (ARDL)
framework and the dynamic OLS (DOLS). Overall results sufficiently conclude that, at least
in the Granger’s sense, there is no long-run causality between export diversification and
economic growth in Costa Rica over the period of 1965 to 2006.