Lessons from Lions and Teachings from Ticos: Attracting Foreign Direct Investment (FDI) to El Salvador

Abstract

This thesis examines El Salvador's challenges in attracting Foreign Direct Investment (FDI), and offers policy recommendations based on case studies of successful strategies to attract FDI from Costa Rica and Singapore. Despite a historic transformation from being the world's most dangerous country to the safest in less than a decade, El Salvador still lags behind regional counterparts and similar middle-income countries in annual FDI inflows, suggesting significant gaps in its approach to economic development. The research conducted for this study highlights three keys for El Salvador's approach to attracting more robust FDI: (1) bolstering human capital, (2) improving export infrastructure, and (3) reducing investor uncertainty. With the following requisites in place, El Salvador is well positioned to become the next logistics hub of the Americas and a premiere tourist destination in the near future. To support these conclusions, this thesis examines the academic literature and the history of FDI attraction in El Salvador. It then proposes a country diagnosis, offering insights on the current significant challenges to FDI attraction based on research conducted through interviews with experts at international financial institutions, Salvadoran government leaders, and private sector executives. Finally, it analyzes case studies to highlight policy recommendations that, if implemented, could drive significant growth in FDI for El Salvador.