Joining Multinational Supply Chains — Costa Rica's Evidence-Based Supplier-Linkage Push

Costa Rica has attracted substantial foreign direct investment, but it was unclear how much domestic manufacturers actually gained from starting to supply the multinationals operating in its export-processing zones.

Economists Alonso Alfaro-Ureña, Isabela Manelici and José P. Vasquez used two decades of Costa Rican tax-authority firm-to-firm transaction records to trace what happens to a domestic firm the moment it starts selling to a multinational buyer, comparing firms just before and after they land that first multinational client.

PROCOMER, Costa Rica's state trade and investment promotion agency, cites these findings as the rationale for its ongoing supplier-development work, including the Encadenados matchmaking conference run with the free-trade-zone business association AZOFRAS to connect domestic manufacturers with multinational buyers in export-processing zones around Heredia and the Greater Metropolitan Area.

Firms that land a first multinational buyer see employment rise by 26% and total factor productivity rise 4-9% within four years, effects unlikely to be explained by demand shifts or tax-compliance changes alone; the gains spread further, with these firms' sales to other, non-multinational customers growing by an additional 20% as the new relationship builds capabilities, reputation and referrals.

Firm surveys point to concrete mechanisms behind the gains -- new managerial practices, quality-certification requirements and reputational spillovers -- but the design is quasi-experimental rather than a randomised trial, so the authors cannot fully rule out that the most capable firms are also the most likely to be selected as suppliers, even though pre-trends were flat before the first sale.