Readers Question: To what extent can a government influence the rate of growth of a developing country?
There are various policies the government can use to try and increase the economic growth of developing economies.
Demand side policies.
Cutting taxes, and cutting interest rates. These help to increase aggregate demand and boost short term growth. However, demand side policies are only really appropriate for helping short term problems of slowing demand. Demand side policies do not deal with the fundamental structural weaknesses of an economy.
Supply Side Policies
These are policies which help to increase the long run rate of productivity in an economy. For example, spending money on better education and training helps to increase labour productivity. These policies can help to increase productivity in the long run.
Increasing Savings Ratio
It is argued if a government can increase savings ratio, it enables a higher rate of investment. This can lead to higher rates of growth over time. However, it depends on the efficiency of the investment. Higher savings rates do not always equate to higher growth rates Continue Reading →