Economic Development: Theory and Policy Applications

By Fidelis Ezeala-Harrison | Go to book overview

12
Development Planning and Policy Issues

This chapter deals with the involvement and role of central government in economic development, and focuses on two aspects of government activities in the development process: (1) the leverage of using economic policy instruments, at both micro and macro levels, to promote, direct, and stabilize the key economic indicators; and (2) the long-term planning and programming of key predetermined objectives of long-run economic development. The need for these planning and policy measures in LDCs is important first, because of the inherent inadequacies of an unrestricted free market system in ensuring the attainment of the broad goals of economic development, and second, because the requirements of a fully "competitive" economic system may result in declining economic growth and worsening inequity and poverty.

Economic stabilization policy involves the use of traditional micro- and macroeconomic policy instruments such as money supply, interest rates, government spending, taxation, labor market counseling and placement programs, human resources planning and development, and population controls to influence key economic variables with a view to directing them toward some desired target levels. These key economic variables include the national income (GDP), employment (or unemployment), the rate of inflation, the balance-of- payments account, and the international exchange rate of the country's currency.

Economic planning, unlike stabilization policy, is a more fundamental aspect of economic policy aimed at overcoming the limits that resource constraints, and their methods of allocation over time, impose on the rate of economic growth and the pace of economic development. Planning is designed to choose and coordinate investment projects in order to channel scarce factors into their most optimally productive uses. As such, development planning also encompasses the use of micro- and macroeconomic policy instruments toward achievement of their longer term objectives. These two aspects of government activism in the development process deserve special attention in the development policies of LDCs.

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