Government Economic Role, Macroeconomics, Economics

Government Economic Role

Since Keynesian revolution in the late 1930s, the economic role of the government has increased tremendously. The growth of the government’s role has proved to be both a positive and a negative factor in the process of economic growth and development whether the government plays a positive or a negative role in economic development of a country has been a controversial issue. However, even the most ardent critics of the government economic role agree that the government can play and in fact has played a very significant role in the process of economic growth and development of a country.

The major areas in which the governments have contributed significantly in the process of growth and development cane classified under two broad categories, (a) building of social overhead capital and (b) promotional roles.

Social overhead capital plays a significant role in economic growth of a country. In fact, it provides a foundation for economic growth. Building social overhead capital is one of the important areas in which the governments have made significant contributions to economic growth. The social overfeed capital, also called as social infrastructure, can be defined as all man-made means of production which are used directly or indirectly in the process of production. Social overhead capital includes:

1. Means of transport (including roads and bridges, railways, airports, seaports, etc.),

2. Means of communication (including postal services and telecommunication network),

3. Educational institutions (including schools college universities, research institutions and training centers),

4. Means of irrigations (dams and canals),

5. Electricity generation plants and distribution network,

6. Health-care system (hospitals and primary health centers),

7. Supply of drinking water, and sewage and sanitation system.

The social overhead capital enhances the efficiency of individuals, firms and of the society. An efficient transport and communication system stimulates economic activities by making product and factor markets work more efficiently and by reducing cost of production. For example, according to roster, railroad worked as the leading sector in economic take-off of many developed countries including the untied states, canapé United Kingdom France, Germany and Russia. The spread of rail-road network makes the distant areas of the market easily accessible for the producers. The expansion of road transport played an important role in economic development of developed countries. It increase mobility of labour and other factors of production and increases interaction between the demand side (the buyers) and the supply side (the producers) of the market,

The need for public investment in social overhead capital arises because private sector capital does not flow to this sector for the following reasons.

(i) It requires heavy investment which private sector can hardly afford

(ii) Rate of return is low and slow;

(iii) It has a long gestation period; and

(iv) Social overhead capital is of public good nature which causes problems in pricing

To sum up, government plays an important role in economic growth by way of building necessary and adequaqtesocial overhead capital developing infrastructure, playing a complementary role where private venture is lacking by developing and maintaining an efficient financial infrastructure and system and by protecting the domestic industries against foreign competition in both domestic and international markets.

It may be finally added that whether a government helps or hinder economic growth of the country depends on the efficiency of the government appropriateness of its economic policies, and honest and efficient administration. An inefficient corrupt and dishonest bureaucracy can do more harm than good to the growth process, as is the case in India, according to a survey conducted in 2009 by a Hong Kong based political and economic risk constancy, India’s bureaucracy is on the top of the bureaucracy efficiency ranking.
Posted by Bhatt Jai | Posted Date: 11/14/2011 3:51:49 AM

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