Strategies 4

Market based supply-side policies

They can be used as a development strategy when the government allows the market to facilitate economic development in an ELDC.

• Encouraging export promotion strategy through liberalized free trade
• Decreasing direct taxation on individuals and business to increases motivations
• Privatization of key domestic industries to improve productive efficiency
• Deregulation of markets to encourage competition

AD

• Creating greater efficiency
• Free trade – lower price – welfare gains for consumer
• Lower rate of tax – increases consumption and investment
• Deregulation & low business tax – attract foreign investment

DIS

• Deregulation – market failure
• Cut taxes – widening income inequalities
• Free trade – increase foreign competition – business failure

Interventionist policies

Where government is actively involved in the economy through its own expenditure and activities to facilitate economic development in ELDC.

• Investment in infrastructures
• Improving human capital
• Mange the distribution of income
• State provision of merit and public good

AD

• Increase potential output
• Achieving socially efficient output

DIS

• Excessive bureaucracy corruption and inefficient management
• Opportunity cost
• Interest repayment + raising taxes