Growth and Urban development
The present major economic statistics of the country indicate that there is a serious problem existing in the education sector. Neither the government is allocating enough for advancement in this area nor much if being done to make education more accessible to all sections of the society.
Females are still lagging behind in education which is negatively affecting the economic conditions since these women fail to participate in white collar job market. Most women are still engaged in primitive trade such as poor cottage industries or agriculture which is not suitable for a country that seeks to expand its economy.
Secondly, we notice that government has been exercising strict control over financial markets which is again not working in favor of economic growth. Economy has to be liberalized by lifting financial controls. This would help in fostering long term growth. We have studied the case of some developing countries and it has become clear that despite the opposition against financial liberalization, this policy has worked well in the long run.
Thirdly, we must understand that by entering WTO, the country can stand to benefit from increased foreign investment and trade concessions. We have studied WTO’s provisions for developing countries and it appears that smaller nations can benefit from entering WTO provided they work on other areas of development as well.
Education is the key variable in addressing and explaining growth theory as it relates to developing countries. While it is believed that education on the whole doesn’t really increase growth or productivity in the developing countries, we have found that education along with technological advancement will help all sectors to become more productive and efficient. Many important studies have found that when education tends to bring greater productivity to developing countries despite claims to the contrary. Similarly it has also been found that when the variable of education is added, it makes growth theory even more powerful and helps explain the entire growth picture better. In the study conducted by George Psacharopoulos where he used the Mincerian model to the information collected on 61 countries, it was found that:
• The rate of return tends to be higher in low-income countries.
• Primary education makes the most valuable contribution to an individual’s expected income in developing countries.
• The rate of return declines with the level of schooling and the country’s per capita income.
• Investment in girls’ education tends to yield a higher rate of return than investment in boys’ education.
• Among those in the labor force, the return to educated people is generally higher in the private, competitive sectors than in the public sector. (Psacharopoulos,1985 583-604)
Apart from education, the government must also focus on lifting of controls from the financial markets. It is a documented truth that liberalization yields good economic returns in the long run in the developing countries. Since the government is seeking long term growth, we must take liberalization into account. Despite the earlier claims of losses due to liberalization, Data and research conducted after 2001 revealed that financial liberation was a healthy policy but it worked more effectively in the long run since it took time for changes to become a part of the entire economic infrastructure. Secondly it was also found that the extent to which long term growth can benefit from liberation depends on some other economic factors as well such as large scale macroeconomic instability. Pill & Pradhan (1997) explained that credit allocation is a huge problem under financial repression. Since government exercise strict control over bank’s policies, negative real interest rate emerges which results in high demand for credit. To avoid this problem, interest rate needs to become positive which is possible with liberation of markets.
Positive interest rates will attract more savings which means banks have more capital at their disposal to offer to borrowers. Similarly borrowers would want to invest in productive businesses only because of positive interest rates and this leads to overall improvement in economic health of the country. Consequently, financial liberalization should lead to an increase in both the quantity and the quality of financial intermediation by the banking system. Financial liberalization can therefore stimulate economic development through a variety of channels… Liberalization may also involve the abolition of controls on international capital movements. Solow and other neo-classical growth models can also be used to explain why liberalization leads to greater long term benefits. It is found that countries with higher rate of savings exhibit higher growth rate. For example Singapore during 1960s had a 40% savings rate compared to 16% in Kenya. The two countries thus had a 5-6% and 1% growth rate respectively. With financial liberalization, savings increase and this can lead to higher growth rate.
Tags: developing countries, economic growth, economic statistics, growth economy, growth theory
