Book Chapter
Reforming a Small Resource-Rich Developing Market Economy

This chapter explains why Costa Rica’s potentially favourable endowment of social capital delayed reform and economic recovery. It analyses the country’s growth collapse in the early 1980s and economic reforms initiated in 1985. It is shown that the ambitious expansion of social entitlements outstripped the economy’s capacity to sustain it. Forced industrialisation distorted the economy through the 1960s and 1970s and caused it to lose momentum. The accumulated social capital then retarded economic reform. However, social capital did allow reforms to proceed more smoothly and with less hardship for the poor.