This study examines the existence of a long-run relationship between indigence or extreme poverty reduction and agricultural, manufacturing and tourism development in Costa Rica and Nicaragua. An econometric methodology consisting of an autoregressive distributed lag bounds testing approach to co-integration is used. For Costa Rica, agricultural and manufacturing (not statistically significant) and tourism development are negatively related to indigence poverty with estimated elasticity values of −0.50 for agriculture, −0.17 for manufacturing and −0.58 for tourism. For Nicaragua, the estimated elasticity values are −0.40 for agriculture, −0.13 for manufacturing (not statistically significant) and −0.64 for tourism. Tourism's rate of poverty reduction was statistically significantly greater than that of agriculture for both countries. The main contribution of this paper lies in the understanding of sector contributions to alleviating poverty. The methods utilized can be undertaken by most countries in the world, thereby providing insights into developing targeted investment policies and strategies to achieve higher rates of poverty reduction.
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