Question

Was import substitution industrialization successful in Costa Rica? If not why? if yes why?

Answer 1

Costa Rica has a mixed economy that plays an important role for both public and private companies. For decades, the government has been promoting socialist policies. The economy's emphasis has been placed on government promotion of human development and welfare, while still allowing private firms to operate in some industries. These efforts were intensified in the 1950s when a method of economic development (planned growth) that was heavily dependent on the state was supported by political and social forces.

The greatest sign of the socialist ideology of the state was its acquisition of distressed goods and companies. In the second half of the 1900s, when the state purchased interest in key industries such as banking, electricity, telecommunications, insurance, medicine, and education, the economy underwent nationalisation. Costa Rica maintained a relatively high standard of living under government control.

This policy, however, was focused on deficit spending, which meant that the Costa Rican government spent money it did not have. Even worse, policies on import substitution industrialization (ISI) were also financially supported by the government during the 1960s and 1970s. Such policies were meant to make the country more self-sufficient in manufacturing, but ISI policies put Costa Rica deeper into debt.

The government sold several businesses it had invested in, but the main sectors, with the exception of the banking industry, remained under state control. The Costa Rican people preferred a state-run economy and planned to fund their debt by attracting foreign direct investment. Public funds tended to concentrate on industrial goods production and export. Deficit spending increased, despite an increase in revenues, and public debt rose. Interest payments on this debt consumed a third of the annual government accounts, making the economy fragile