What actions can/do governing authorities take to promote long-run economic development?
While growth can be measured in a fairly straight-forward fashion, good governance is much more problematic. Clean, effective government is desirable, but what is not so clear is whether it is an essential or even important antecedent of rapid economic growth—let alone whether it can be created through the administrative and judicial reforms most commonly recommended by donor governments and international financial institutions. Such reforms may in the end be essential, but they may also be ineffective in the absence of economic development or simply find their emergence blocked until underlying socio-economic structures or sociopolitical interests are transformed. We also worry that popular measures of improper governance are only partially adequate. Before we can with certainty estimate the strength (and causal direction) of the growth-governance linkage, we need measures of the latter uncontaminated by knowledge of antecedent economic performance or assumptions about economic policy choices. To promote growth and ensure economic development a general combination of demand-side and supply-side policies is required.
Demand side policies include:
- Fiscal policy (cutting taxes/increasing government spending)
- Monetary policy (cutting interest rates)
Supply side policies include:
- Privatization, deregulation, tax cuts, free trade agreements (free market supply side policies)
- Improved education and training, improved infrastructure. (interventionist supply side policies)
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