Costa Rican industry expanded in the 1960s and 1970s through government investment and protection. Sizable industrial investments were undertaken by the state through its development agency, CODESA. The investments aimed at reducing foreign dependence. However, the halt of foreign competition through trade protection resulted in inefficiency and products of poor quality. The strategy was abandoned in the mid-1980s as the government initiated a process of trade liberalization.
Industrialization policies since then have supported nontraditional exports. They have relied on direct subsidies such as the CAT (Certificado de Abono Tributario— a tax refund certificate) program; and indirect subsidies such as income tax exemptions, preferential import duties, and streamlined import-export facilities.
The result has been a sustained increase in the flow of industrial exports that has more than doubled their dollar value in less than 10 years, from US$518 million in 1991 to US$1.1 billion in 1999. Since 1996, industrial exports have contributed over 40 percent of all exports, excluding those from the free zone. About 15 percent of the workforce is employed in manufacturing activities.
Industry has also been promoted through the attraction of foreign investment. The country's industrial policy has been successful in attracting high technology companies, the most noteworthy being Intel Corporation, which invested over US$200 million in the construction of microprocessor production facilities in 1998. Total export volumes nearly doubled as a result of these investments, from US$3.5 billion in 1995 to US$6.6 billion in 1999. The export volume of the free zone sector was greater than the combined revenues of the normal export sector.
Because small industry is rarely eligible for free zone benefits but is subject to all forms of regulation and taxes—including payroll taxes that can reach up to 50 percent of workers' salaries—a growing number of establishments have been appearing in the informal sector . The Costa Rican Chamber of Industry estimates that 84 percent of all the industrial firms established in the 1990-98 period belonged to the informal sector.