(1984). 6) To known the obstacles facing community development in independence layout. The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for far longer. We argued that economists and policy makers alike overlook the role that indigenous institutions play in economic development. One was the convening in 1964 of the United Nations Conference on Trade and Development (UNCTAD) and its establishment as a permanent organ of the UN system. This will have the effect of taking away the purchasing power from the rich and well-to-do people thereby curbing the consumption expenditure. The government should borrow more from the rich people and spend this amount in large scale on public works, and social security projects. The developing countries, therefore, should be more pragmatic in their approach and must evolve such a differentiated interest rate policy which should restrain the superfluous spending, contain the inflationary pressures, promote capital formation and sustain the investment activity at a level such that the pace of growth is not slowed down. This concludes budgets, debts, deficits and state spending. Title: The Role of Social POlicy in Economic Developemnt: Some Theoretical REflections and Lessons from East Asia Author: Chang Created Date: 11/19/2002 3:51:23 PM On the other hand, an increase in the rate of interest will stimulate savings. Besides, the rise in per capita income and increase in population during the development process also increases the demand for money to carry out day-to-day transactions. Besides, a low structure of interest rates minimizes the burden of public debt. 1. This being the case all out efforts must be made by the monetary authority to extend the sphere of the monetised sector to make monetary policy a success. 2. The Role of an Economic Development Director ... Economic development policies are ultimately approved by the city council. Role of Fiscal Policy in Economic Development Fiscal policy refers to the guiding principles of the financial work which are constituted by the state based on political, economic and social development tasks under a certain period. Economic development requires investment on a gigantic scale both by the public sector and the private sector. Hence, there will be effective control of money supply in the economy. The monetary authority should step in to make appropriate guarantees and provide rediscounting facilities with a view to induce and encourage banks to provide medium and long-term loans for productive purposes. In fact, the development and implementation of fiscal policy must be cooperated with the financial policy, industrial policy and income distribution policy and other economic policy. To reduce the credit creating capacity of the banks further, the Central Bank may supplement it with the sale of government and banks securities, raising the serve ratio and by instituting selective credit controls. Correspondingly, a decrease will depress aggregate demand and reduce national income. However, economic development leads to inflationary pressures in under-developed countries due to a variety of structural rigidities and imbalances. The commercial banks, mainly provide short-term credit requirements of businessmen and traders and are reluctant to provide medium and long-term credit to meet the financial requirements of industry and for manufacturing in general. To achieve an environment that is conducive for sustainable employment-generating growth, macro-economic policy plays a key role. Economic consideration has an important role in formulating regulatory policy. The government must adopt deficit budget in order to increase the income stream in the economy through increased injection of fresh purchasing power into the economy. TOS 7. Economic development is generally believed to be dependent on the growth of real factors such as capital accumulation, technological progress, and increase in quality and skills of labour force. Price Stability, 3. Credit Control, 4. 5) To make investigation on the economic status of the community in independence layout and evaluate the impact of Non- governmental organization in their assistance. The role of fiscal policy  in removing income inequalities in a developing economy cannot be exaggerated. On the one hand, an increase in government spending will stimulate aggregate demand and increase the national income. Image Guidelines 5. Depression is a period characterized by low income, low employment and low consumption. This should be followed by the expenditure on growth oriented industries and other related activities. Acceleration of Economic Growth: Tax policy may be used to handle critical economic situation like depression and inflation. Role of Monetary Policy in Economic Development of Pakistan. If unregulated, the market activities itself creates inefficiency or waste and market failure. In developing economies, the government has to borrow on a large scale to implement the programmes of economic development and hence the responsibility of managing public debt effectively and efficiently so as to serve the requirements of economic growth, lies with monetary authority that is the Central Bank of the country. Another way in which the fiscal authorities can function is to  indulge in public borrowing. To create a low inflationary framework, it requires: 1. But these arguments do not carry much weight. How have economic historians understood the role of politics in shaping country differences in economic development? The monetary authority can help in the expansion of financial institutions by granting subsidies and special concessions in the form of free remittance and rediscounting facilities to new institutions and by providing training facilities for their staff. 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Government economic policy, measures by which a government attempts to influence the economy.The national budget generally reflects the economic policy of a government, and it is partly through the budget that the government exercises its three principal methods of establishing control: the allocative function, the stabilization function, and the distributive function. Similarly, selective credit controls should be adopted to influence the pattern of investment and production by differentiating between the costs and availability of credit to different sectors and industries. Instead, monetary policy—controlling the nation's money supply through such devices as interest rates—assumed a … Since there is dearth of complementary resources in such economies and the supply curve of goods is generally inelastic, the abnormal increasing effective demand generated by huge government expenditure paves the way for inflation. Role of Fiscal Policy in Economic Development of Under Developed Countries! Similarly, inflationary increase in prices leads to the frequent devaluation of the currency. Similarly, if the supply of money is more than needed by the requirements of trade and industry, it may be used for speculative purposes, thereby inhibiting growth and causing inflation. The government also provides polices that help support the functioning of markets and policies to correct situations when the market fails. Its purpose is to regulate aggregate demand through government’s spending and tax policies. With a view to secure an accelerated rate of economic growth, the monetary authority should press into service its techniques of credit control to influence and shape the character and pattern of investment and production. Through its debt management policy also the fiscal authorities can control inflation. The fluctuating exchange rates adversely affect international trade and the earning of foreign exchange tails, which could help in the development of the country. The government may start borrowing from the people in large scale so that the disposable income with the people will be reduced bringing down the demand and prices. Fiscal policy should change this situation. Government must use its planning machinery to identify the right priorities so that the hard mobilized funds are utilized in the best way possible. over the stability of the economic development. But too much reliance on deficit financing will also be dangerous. Similarly the Central Bank and financial corporations to provide finance to business and industry. Role of Human Resource in Economic Development of Country - Economics Notes Grade XI Management. Further, qualitative methods of credit control can be used effectively to ensure flow of funds into desirable channels. Therefore, taxation and public expenditure are the two very useful instruments of fiscal policy which can bring about the income equality in a developing economy. For the attainment of the objective of growth with stability, the monetary authority of developing economies, therefore, has to play a positive role in creation, working and expansion of banking and other financial institutions and extend credit facilities where needed. In fact, it is due to market imperfection that need of regulation in production and marketing activities was felt. In most of the under­developed countries, the banking system is not fully developed. Fiscal policy refers to the guiding principles of the financial work which are constituted by the state based on political, economic and social development tasks under a certain period. The continuously rising demand for money makes it imperative for the monetary authority to increase money supply at a rate roughly equal to the rate of increase in real income, so that prices do not fall consequent upon a rise in national output. In developing economy, there may be no shortage of real or physical resources, but there may be a severe shortage of financial resources which are required to utilize the physical resources. This implies the adopting of such monetary policies that will check inflation and frequent development of the currency. Economists have recognized the role that institutions play in fostering economic growth and more broadly economic development (Ben Ali and Krammer, 2016). If voluntary lending is not effective, then the government may resort to involuntary lending or compulsory saving by the people. Secondly, the government must encourage consumption and investment and for this purpose the taxation should be brought down. Public Health and Family Planning: The development and maintenance of public health services are … Before publishing your articles on this site, please read the following pages: 1. For this purpose, the government should raise funds by imposing taxes on the rich people so as to bring down their purchasing power. Privacy Policy 8. Then the government also injects public investment through public projects. A developing country generally suffers from balance of payments difficulties because of the high propensity to import and limited capacity to export. The anti-inflation debt management requires the retirement or payment of bank-held securities or debts through budgetary surplus. Prohibited Content 3. Market failure is mainly two types In depression, tax is set to increase the consumption and reduce the savings to increase the aggregate demand and vice verse. Local economic governance is about strengthening the governance capacity of local institutions to manage economic growth and other development challenges at the local level taking advantage of the opportunities of economic liberalism ushered in by the globalisation dispensation (Tolentino 2011). Liberalized corporate tax policy will also help to increase the corporate expenditure giving the necessary thrust for the revival of economic activity. 5. Macroeconomic Stability Macroeconomic stability would involve a commitment to low inflation. Hence, it has been found that fiscal policy alone cannot solve this problem of unemployment in a developing economy. This can be done using all the tools of fiscal policy. This will quicken the pace of development. Economic development begins with policy, meaning government officials at all levels act as critical stakeholders. An empirical investigation of 56 developing countries is used to assess this role of the government and to evaluate whether it is facilitating or hindering the process of economic development. The various tools of fiscal policy such as budget, taxation, public expenditure, public works and public debt can go a long way for maintaining full employment without inflationary and deflationary forces in underdeveloped economies. Following on from this recent debate, ODI invited them both to further the discussion on what role industrial policy can play in promoting development. And they will be increased due to reducing in government revenue as well. Price Stability, 3. Credit Control, 4. Role of Fiscal Policy in Economic Development, Keynesian Theory and Underdeveloped Countries, Importance of Capital Controls in Economic Policy, Correction of Balance of Payments (BoP) Deficit, Deflation - Meaning, Effects and Modes of Control, The macroeconomic environment in marketing, Implementation of New Economic Policy to Indian economy in 1991, Keynesian and Classical Economists Views about Disequilibrium. Another instrument available is public debt. Monetary policy can speed up the process of economic development by improving the currency and credit system of the country. Appropriate Adjustment between Demand for and Supply of Money, 2. Canadian Journal of Development Studies / Revue canadienne d'études du développement: Vol. Apart from the voluntary lending schemes the government should also devise schemes to encourage compulsory savings. The tax revenue will then be used for public expenditure purposes which will also be low during inflation. With public expenditure and taxation, the government can very easily achieve income equality. Role of monetary policy in the economic development of a country are as follows: 1. For instance, during inflationary period, the government should adopt surplus budget, along with hard money policy, while during depression, deficit budget should be combined with cheap money policy. The role of fiscal policy The role of fiscal policy—the national government’s planned, discretionary balance between its outlays and recurrent revenues (broadly, spending and taxes)—has long been a subject of debate and controversy in modern times. An impressive recent literature can be sorted out according to the degree of “human agency” at work. 6. In short, instability in internal prices and exchange rates impedes the rate of sustained economic growth and consequently monetary policy should aim at preventing excessive increase in prices and maintaining exchange stability at some realistic level. The effects of various kinds of public spending and revenue (mainly taxes) are examined. This being the case, the savings of the people cannot be mobilised effectively for economic development and consequently the rate of growth is very slow. Alternatively, the government can increase the existing tax rates or impose new taxes. There are numerous forces that function together to enhance economic growth and development. Introduction: In an ordinary sense, human resource refers to the population of the country but in economics, the healthy, educated, and skilled manpower is known as human resource. The productive and efficient use of investible resources can be better secured by direct controls and control over capital issues. But this is very difficult in practice as in a developing country the government cannot have budgetary surplus. Learn how your comment data is processed. A higher rate of interest may, however, be used as a shock tactic to curb speculation in goods and securities when it gets beyond control and other methods have failed to control it. 5, No. Pump priming refers to the initiation of investment activity by the government through its expenditure on public projects which will be followed up by the increased private investment. The monetary authority, therefore, should keep a constant vigil on the movement of prices and so regulate the supply and direction of money and credit that it puts a check on rising prices. Low inflation creates a climate where foreign investors have more confidence to invest in that country. It may completely or partially relieve the poor people from the tax net. In such a situation, the monetary policy should be directed to improving the foreign exchange position. Public debt policy can be suitably modified to fight against depression. The object of fiscal authorities should be to mobilize much funds as possible so as to carry out large scale public projects. Economic growth calls for the application of all the tools of fiscal policy. The state fiscal policy is an integral part of overall economic policy, and is closely linked with the other economic policies. Report a Violation, The Major Role of Monetary Policy in a Development Economy | Economics, Role of Monetary Policy in the Economic Growth of a Country, Monetary Policy in Under-Developed Countries. The government should devise its public expenditure scheme by focusing on the poor and down-trodden people in the society. Plagiarism Prevention 4. the role of foreign policy in economic development in kenya, 1990-2010 by arthur ahuya olanda a research project submitted in partial fulfilment of the degree of master of arts in international studies to the institute of diplomacy and internatioanl studies, university of nairobi november 2010 The first step to curb inflation is to control the purchasing power with the people. It has to be coupled with monetary policy. Maintenance of stability in the domestic level of prices and exchange rates is an important condition of economic growth. Your email address will not be published. Two recent events, both relating to international organizations, underscore this acceptance. Copyright 10. The role of public policy has been one of those forces that can have either a positive or negative impact. The gist of the argument is that a proper control upon the supply of money will prevent economic fluctuations and pave the ground for rapid development. The Role of Political Leadership in Economic Development. Your email address will not be published. On the other hand, a tax is a kind of contraction strength to national income. So far a stimulus to savings is concerned, it may be mentioned that the volume of savings is more a function of the level of income rather than the rate of interest. (c) It would secure the allocation of scarce capital into most productive uses and avoid productive and wasteful use of resources. The key role of trade in the development process is widely accepted today. Suitable Interest Rate Structure, 6. 1, pp. Create Jobs: Entrepreneurs are by nature and definition job creators, as opposed to job seekers. The role of monetary policy in economic development. A period of high inflation, high unemployment, and huge government deficits weakened confidence in fiscal policy as a tool for regulating the overall pace of economic activity. Both support a strong role for the state in promoting economic development but differ on the specific role that industrial policy can play. But this tendency on the part of private investors can be checked through selective credit control and thereby directing investment into desirable channels. Disclaimer 9. The role of the entrepreneur may be viewed as the leader of the whole … Fiscal policy deals with macroeconomic levers of power. Appropriate Adjustment between Demand for and Supply of Money: 4. This site uses Akismet to reduce spam. In other words, by reducing the excess of  labor  from that job, the productivity or production will not be affected. Thus for speeding up the process of economic development, the monetary policy should aim at the efficient management of public debt which implies proper timing of the issuing of government bonds, stabilising their prices and minimising the burden of debt. All these steps will help to protect the economy and enable it to recover from depression. The Role Of Government In Economic Development 2. The primary object of debt management “is to create conditions in which public borrowing can increase from year to year and on a big scale without giving any jolt to the system. In under-developed economies, governments have to spend on a gigantic scale under the planning process to secure growth rate commensurate with the growth rate of population and also to provide social and economic overheads. Resources mobilized in this manner should be spent in such a way that the infrastructural facilities are strengthened first. ... Do We Need Low Inflation for Development? Deviations from policy are also brought to the city council for approval. The government can resort to both the direct as well as indirect taxes so as to generate as much funds as possible from all those who have the ability to pay. E.g. As part of the broad levers of policy, macro-economic policy impacts on employment, investment and economic growth, among others. It broadly concludes that fiscal policy could play a fundamental role in affecting the long-run growth performance of countries. Besides joint loans by commercial banks and state owned financial institutions can greatly help in this direction. However, fiscal policy can play a vital role in helping to achieve a rapid economic growth. In this process now-a-days the governments also resort to deficit financing. In doing so, we first considered the evolution of development economics to understand how the role of the economist has become what it is today. Role of monetary policy in the economic development of a country are as follows: 1. The inflationary increase in prices adversely affects the propensity to save and diverts invertible resources into speculative and unproductive investments such as real estate, jewellery, gold, stock-piling of goods etc. The government can achieve this either through pump priming or compensatory spending. SAVE THIS ARTICLE EMAIL THIS ARTICLE. The field of development economics is concerned with the causes of underdevelopment and with policies that may accelerate the rate of growth of per capita income. Thus in an underdeveloped economy, the monetary authority should control the uses of money and credit by an appropriate monetary policy so that investible resources flow into desirable channels without adversely affecting investment and production. For instance, during inflation, since the private expenditure is high the government should bring down the public expenditure so that, to that extent the income generation will be controlled. Required fields are marked *. 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