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We analyze five Productive Development Policies (PDPs) implemented in Costa Rica to assess whether these policies are justifiable based on the existence of market failures. We find that PDPs are not addressing market failures optimally. Moreover, this study shows that government failures rather than market failures are the main source of PDPs justification. Even in presence of market failures, the instruments applied in the policy design are not necessarily the more efficient (according to economic theory), but the more politically feasible options (lower-political cost). Besides, lack of policy evaluation and monitoring prevents the required adjustments and corrections of such policies, according to changing circumstances. The case studies indicate that addressing the arguments for policy intervention and incorporating the results of the evaluation into policy design and reform are necessary conditions for success. The improvement of key areas (like infrastructure, technology, business regulations, and market distortions) to enhance competitiveness and create the required conditions for productivity growth is a policy objective still on process, with positive outcomes but important limitations so far. An umbrella approach in the case of those PDPs that reinforce and create feedbacks between each other is necessary for productivity growth.

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