Role Of The State In Economic Development – The purpose of this paper is to examine recent research on the role of the state in economic development. It concludes that government incentives to implement sound policies are critical to economic success. It also looks at what happens after economic and political liberalization, asking whether political liberalization has increased governments’ incentives to implement sound economic policies. The answer is complex. Most economic liberalization events are preceded by political liberalization events. However, those countries that opened their economies first and then their political institutions fared best.
In 1801, Thomas Jefferson believed that the role of the government should be: improve the institutional framework, develop agriculture, and develop industry. Is this minimalist view still relevant today? Or are we wiser because of our experiences? This article addresses this question by reviewing the recent literature on economic growth and the role of government in promoting economic growth.
Role Of The State In Economic Development
The central conclusion of the recent literature is that Jefferson was basically right. Not because small government is always better than big government. However, the main challenge facing most developing countries is to establish the basic legal and institutional infrastructure that protects property rights, enforces private contracts, and allows individuals to freely exploit market opportunities.
Pdf) States And Economic Development
Government can and should do more than simply provide public goods, correct market failures, narrow income and opportunity disparities, and stabilize excessive economic volatility. However, these other government activities do not determine the success or failure of economic development. The basic institutional and legal infrastructure that protects property rights, enforces the rule of law, and prevents government abuse is critical.
This leads to a more difficult question. What can developing countries do to help create these basic institutional infrastructures and, more broadly, appropriate government incentives? The paper concludes with a broad discussion of this issue, including a review of some recent research on the influence of economic and political factors. “In these countries, the primary responsibility of the state is to bridge the social divide and create a psychological, intellectual, social, and political environment conducive to economic development.” Thus, the scope of government action is extremely broad and comprehensive. It includes “maintaining public services, shaping economic institutions, influencing resource use, influencing income distribution, controlling the money supply, controlling volatility, ensuring full employment, and influencing investment levels”
In least developed countries (LDCs), agriculture accounts for more than half of gross national income. Still, agriculture has stagnated. It receives a small percentage of national income compared to the number of employees. Agriculture, for example, employs about 70% of the population and generates about 50% of India’s national income. The main reason is to show low agricultural productivity per acre. Low yields are due to diseconomies of scale of land, fragmentation of land, faulty land lease system characterized by high rents and insecurity of ownership, lack of adequate credit facilities, indebtedness, lack of irrigation facilities and reliance on rainfall, and the use of obsolete production way, and the excessive pressure of population on the land.
Farmers in LDCs are poor, illiterate and uneducated. They are sloppy in organization. They don’t want to change the land. Customs and traditions determine their way of life. Therefore, the implementation of land reforms and the formulation of agricultural development plans fall within the scope of State activities. The extent to which agricultural productivity increases will ultimately determine the success of the program. Increased agricultural production is necessary to meet industrial demand for raw materials, to achieve food self-sufficiency, to maintain price stability, to mobilize more resources for development, and to efficiently utilize idle and underutilized labor resources in the economy.
Development Policymaking And The Roles Of Market, State, And Civil Society
Another important role of the state is the industrialization of the economy. The state is obliged to nationalize its mines, plantations and other assets. It should explore its natural resources, develop development and development plans, and build an industry to maximize profitability.
In countries where the private sector is mainly involved in the production of a few consumer goods for domestic consumption, steel, heavy electrical equipment, heavy chemicals, fertilizers, machine tools and other materials are needed. These industries are known for requiring large investments and long gestation periods. As a result, private companies are wary of entering these industries. Therefore, it is the responsibility of the government to build industries in these areas.
Some consumer industries, such as sugar and clothing, also need to be rationalized because they rely on outdated machinery and procedures.
However, in order to achieve rapid economic development, industries for export promotion and import substitution must be established. Furthermore, the concentration of industry in a few large cities left the rest of the countryside backward and underdeveloped.
Pdf) Development And The Role Of The State; Visions Of Post Revolutionary Georgian Government
To solve all these problems, the government must formulate and implement sound industrial policies, agricultural development, and establish a better institutional framework to provide the necessary incentives for the development of cottage industries, small and large industries.
Aemoglou D., S. Johnson, J. Robinson and I. Thaicharoen (2003), “Institutional Causes, Macroeconomic Symptoms: Volatility, Crisis, and Growth”, Journal of Monetary Economics, vol. 50, noun. January 1, pp. 49-123
Hall, R. E., and Mark, L. (2013). Economics: Principles and Applications. (version 6). Mason, Ohio: Southwestern Engagement Learning.
Mr. Trimisiiu Omotaio Lawal is a Lecturer at the Department of Economics, Skyline University, Nigeria. He is a graduate of the Universidad Valleiro, Cano. This article examines the role of the state in economic development. Specifically, we test the effect of total government expenditure and sectoral expenditure on economic performance in developing countries. Our findings show that total government expenditure is negatively related to economic development in low- and middle-income developing countries. However, we find ad hoc evidence that government spending proves to be more growth-friendly when a country is characterized by a well-functioning institutional design. Unlike previous studies, we do not find positive and significant results for sectoral government spending. In fact, our findings show that the costs of transportation and communications, defense, and health are inversely related to economic development. At the same time, public and private investment appear to be positively correlated with economic development through our analysis. We therefore conclude that investment stimulus and institutional reform should play a major role in developing countries’ political agenda, rather than government spending.
The Role Of The State In Economic Development. Do Government Expenditures Promote Growth In Developing Countries?: Schmengler, David: 9783346240019: Amazon.com: Books
Nation-states and their politics play an important role in the economic and socio-political development of developing countries. In some developing countries, government activity and industrial policy have been the main drivers of growth, and in others, market liberalization and government discipline have been beneficial to economic development (Szirmai 2015). It is therefore no surprise that the role of the state in economic development remains one of the most contentious debates in the economics literature. While some researchers emphasize the developmental power of government intervention and government spending, others criticize government activities for actually creating market inefficiencies that hinder economic development. For example, Ram (1986), Romer (1989), Romer (1990), and Rubinson (1977) found that total government expenditure has a positive effect on growth and development. In contrast, researchers such as Barro & Lee (1994), Afonso & Furceri (2010) and Dar & AmirKhalkhali (2002) have emphasized that the impact of government spending on economic performance is rather poor.
Additionally, other studies have considered the impact of disaggregated government spending and have investigated the effectiveness of government spending on economic development in sectors such as public education, defence, transportation, and health. Here, too, the findings were ambiguous. For government spending in certain sectors, the researchers found a positive and significant relationship with economic development. At the same time, others doubt the relevance of sectoral spending in terms of growth and development (see, for example, Bose, Hakue, and Osborn 2007 and Fan, Rao, and Rao 2003).
The supplementary literature highlights the fact that government spending by itself is not an appropriate tool for drawing meaningful conclusions about the relationship between government intervention and economic development. In fact, the researchers argue that every form of government spending is contained within an institutional framework. Thus, they point out that the efficiency and size of government spending may also depend on the institutional quality and political framework of the economy. Therefore, researchers such as Guseh (1997) and Afonso & Jalles (2016) included proxy indicators of institutional quality in their analysis and showed that institutional quality significantly affects a country’s economic performance and innovation capacity.
However, we find that the three aforementioned factors—total total government expenditure, classification of government expenditure by sector, and institutional quality—have been largely treated separately in the existing economic literature to date. Therefore, the aim of this paper is to assess the impact of all three determinants in one combined analysis. Combining all three factors in an econometric framework allows us to untangle their impact and analyze the impact of government spending on economic development in a panel dataset of 35 developing countries