The Role of Government in Economic Growth

The Role of Government in Economic Growth

Governments govern the whole economic system by making policies, regulations, laws etc. It is the central power of the state to drive the economy towards growth and development. There are many objectives that governments might pursue by the way of intervention in the public or private sectors. Government intervention has both positive as well as negative impacts on economic growth. Government intervention increments monetary proficiency when it amends market disappointments and decreases effectiveness when it twists superbly focused markets. This essay will discuss both the pros and cons of government intervention in the economy.

Government policies are formulated by recognizing the social and economic needs of the country which can stabilize the economy. Moreover, government employment not only boosts the economy but also supports the private sector of a country by fulfilling two different roles, namely the regulatory as well as promotional roles. The regulatory role of government includes various direct and indirect measures to keep track of economic activities in private organizations, while the promotional role involves policies and regulations to promote development infrastructure. In a mixed economy, such as India’s, the government plays a significant role by implementing various development strategies which contribute to the overall growth of an economy. For example, the government drafts a five-year plan, to set goals to enhance the capacity for rapid growth in different economic sectors. Similarly, government intervention can increase gross domestic product (GDP). Interventionist supply-side policies involve government intervention to increase productivity and efficiency in economy which reduces inflation, especially cost-push inflation.

In spite of these advantages, growth theorists conclude that government intervention may not lead to full employment. Government spending can be inflationary,

...