Costa Rica enjoys a reputation as one of Latin America’s success stories, largely thanks to its thriving tourism industry and political stability. Despite this, 5.9% of Costa Rica’s 5 million people live in extreme poverty and wealth inequality is increasing across the country. Though historically it has generated many advantages, tourism is now one of the most significant factors contributing to wealth inequality in Costa Rica. The World Bank’s recent aid provision for the country sets out a program of inclusive growth designed to tackle this issue.

Wealth Inequality in Costa Rica

Costa Rica is a small Central American nation with many impressive development indicators. It ranks 62nd (globally) on the Human Development Index and its people live longer on average than those in the U.S. and Saudi Arabia. Costa Rica’s welcoming image is shaped by the government’s decision to dissolve its military in 1948 and its reputation as a global leader in rewilding and ecotourism. It contrasts sharply with many of its Latin American neighbors, especially its troubled border nation, Nicaragua.

Yet, as well as those living in extreme poverty, 25% of Costa Ricans live below the poverty line. The country’s GINI Coefficient, a measure of wealth inequality, increased more than any other country between 2010 and 2021. This makes Costa Rica one of the most unequal countries in Latin America.

Wealth inequality in Costa Rica disproportionately affects those with African heritage, indigenous peoples, single mothers and Nicaraguan immigrants. Following the COVID-19 pandemic, the rate of Nicaraguan migrants living in poverty became 50% higher than that of any migrant group in Costa Rica, such that they are considered to live with a “structurally higher poverty rate.”

Tourism in Costa Rica

Costa Rican tourism has flourished since the ’90s, with popular sites such as the Monteverde cloud forest and Manuel Antonio National Park attracting millions of visitors yearly. Tourists from the U.S., Canada and Europe bring vast amounts of money into the country.

Around 8% of Costa Rica’s total GDP is attributed to tourism, making it one of the country’s largest economic sectors besides foreign investment. The industry employs about 550,000 people, more than 10% of the population and has lifted many out of poverty. Costa Rica also attracts large numbers of expatriates, many of whom stay longer to work remotely.

Impacts on Locals

Tourism in Costa Rica is presenting serious challenges. The emergence of the so-called “Gringo Market” highlights the sharp rise in food and rental prices in popular tourist areas. In these places, the cost of living reflects the purchasing power of tourists rather than residents. These prices overspill into the rest of the country, compounded by the sheer volume of Costa Rica’s land area on the tourist circuit.

Locals are often priced out of their homes and only 16% of the population can financially access the typical living costs of a short-term tourist, reflecting a stark divide. While many benefit from being employed in tourism, many lose out on the distorted living costs that tourism generates.

Visitor numbers declined in the last year, owing to the rising strength of the Costa Rican colon against the dollar and the consequently lower exchange rates afforded to visitors. This foreshadows a long-term tourism climate where only the wealthiest visitors can afford to come. As a result, food and rental inflation will continue, driving out middle-class tourists on whom Costa Rica’s tourism industry and thousands of affiliated jobs depend.

Wealth inequality in Costa Rica is exacerbated by many factors other than tourism. These include import taxes on basic foods, clothing and electronics and governmental bureaucracy slowing economic growth. Yet the overarching concern surrounding Costa Rica’s tourism dependence is that its government and businesses continue to prioritise the needs of tourists ahead of its people. Opposition to tourism in Costa Rica is feared by stakeholders who are cautious of discouraging foreign investors.

Taking Action: The World Bank

The World Bank supports several aid programs in Costa Rica, with a combined value of more than $1.6 million, mainly through U.S. funding. Its 2024 Country Partnership Framework (CPF), administered in cooperation with the Costa Rican government, focuses on pursuing inclusive economic growth to address the country’s rising wealth inequality.

Acknowledging the rising wealth inequality created by Costa Rica’s foreign investment and tourism-driven economy, the CPF has introduced several initiatives. These include diversifying the economy and strengthening the country’s social protection systems. These measures will directly benefit disadvantaged groups such as Nicaraguan migrants, indigenous peoples, single mothers and Afro-descendants.

By 2026, the scheme anticipates reducing Costa Rica’s poverty rate from 25% to 19.5% and its GINI coefficient from 0.509 to 0.493.

Conclusion

Tourism is vital yet challenging for Costa Rica, creating many job opportunities while also deepening wealth inequality. However, initiatives such as those supported by the World Bank offer a chance to address some of this dominant industry’s drawbacks and provide disadvantaged groups with a more inclusive economic outlook.

– Joseph Webb

Joseph is based in Norwich, UK and focuses on Politics for The Borgen Project.

Photo: Flickr