There are differing views about the role that government plays in fostering economic growth in DVCs. The positive view holds that in the initial stages of economic development government action is needed to help overcome such obstacles as the lack of law and order, entrepreneurship and infrastructure. Government policies may also assist capital formation and help resolve social and institutional problems. Problems and disadvantages with government involvement in promoting growth include bureaucratic impediments, corruption, misadministration and the importance of political objectives over economic goals. Central planning does not work because it restricts competition and individual incentives, which are important ingredients in the growth process.
Role of Industrially Advanced Nations:
Industrially advanced nations of the world can help the DVCs develop in a number of ways. They can lower the trade barriers, which prevent the DVCs from selling their products in the developed countries. Loans and grants from governments and international organizations such as the World Bank also enable the DVCs to accumulate capital. This foreign aid has been criticized because it increases dependency bureaucracy and corruption. For these reasons and because of the end of the cold war foreign aid to DVCs is declining. DVCs can also receive flows of private capital from IACs. These flows come from banks corporations and financial investment companies.
Role for Developing Countries:
There are several policies that LDCs and IACs might undertake to foster economic development in LDC's. Two perspectives are offered. LDC policies for promoting growth include establishing the rule of law, opening their economies to international trade, controlling population growth, encouraging direct foreign investment, building human capital, making peace with neighbors, establishing independent central banks, making realistic exchange-rate policies and privatizing state industries. IAC policies for encouraging economic growth in LDC's are directing foreign aid to the poorest of the LDC's, reducing tariffs and import quotas, providing debt relief to LDC's, allowing more low-skilled immigration, discouraging brain drains and limiting arm sales to LDC's.
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Last updated on
April 22, 2004
© KayaV. P. Ford, 2004