Skyline University Nigeria

Role of the State in Economic Development

The purpose of this paper is to examine recent research on the role of the state in economic development. It concludes that government incentives to implement sound policies are essential for economic success. It also looks at what happens after episodes of economic and political liberalization, questioning whether political liberalization strengthens government incentives to implement sound economic policies. The answer is convoluted. The majority of episodes of economic liberalization are preceded by episodes of political liberalization. The countries that have fared the best, however, are those that first liberalized their economies before liberalizing their political systems.

In 1801 Thomas Jefferson believed that the government’s role should be as follows, Improvements in the institutional framework, development of Agriculture, and development of Industries. Is this minimalist viewpoint still relevant today? Or, as a result of our experiences, have we become wiser? This paper addresses this question by reviewing recent literature on economic growth and the role of government in promoting economic growth.

The central conclusion of recent literature is that Jefferson was mostly correct. Not because having a small government is always preferable to have a large one. However, most developing countries’ primary challenge is to establish basic legal and institutional infrastructures that protect property rights, enforce private contracts, and allow individuals to freely exploit market opportunities.

Governments can and should do far more than simply provide public goods, correct market failures, reduce income and opportunity disparities, and stabilize excessive economic fluctuations. These other government activities, however, do not determine the success or failure of economic development. The fundamental institutional and legal infrastructures that protect property rights enforce the rule of law and prevent government abuse are crucial. 

This leads to a more difficult question. What can developing countries do to aid the emergence of these fundamental institutional infrastructures and, more broadly, to create appropriate government incentives? The paper concludes with a broad discussion of the issue, including a look at some recent research on the effects of economic and political factors. “In such countries, the state’s primary responsibility is to bridge social chasms and foster a psychological, ideological, social, and political environment conducive to economic development.” As a result, the scope of government action is extremely broad and comprehensive. It consists of “maintaining public services, shaping economic institutions, influencing resource use, influencing income distribution, controlling money supply, controlling fluctuations, ensuring full employment, and influencing investment level”

The Key Important Role of the State

Development of Agriculture

In Less Developed Countries (LDCs), agriculture accounts for more than half of total national income. Agriculture, despite this, remains stagnant. It receives a disproportionately small share of national income compared to the number of people employed in it. Agriculture, for example, employs roughly 70% of the population and generates roughly 50% of India’s national income. The main reason for this is to show the low agricultural productivity per acre. The reasons for the low yield are the uneconomic size of the holdings, land fragmentation, a defective land tenure system characterized by high rents and tenure insecurity, a lack of adequate credit facilities, indebtedness, a lack of irrigational facilities and reliance on rainfall, and the use of obsolete production methods, as well as excessive population pressure on land.

Peasants in LDCs are poor, illiterate, and uneducated. They are sloppy in their organization. They have no desire to make changes to the land. Customs and traditions govern their way of life. As a result, the implementation of land reforms and the development of agricultural development plans fall under the purview of state activities. The extent to which agricultural productivity is increased will ultimately determine the success of a plan. Increases in agricultural production are required to meet the raw material requirements of industry, achieve self-sufficiency in food grains, maintain price stability, raise more resources for development, and effectively utilize the economy’s unutilized and underutilized manpower resources.

Development of Industries

Another important role of the state is to industrialize the economy. It is the responsibility of the state to nationalize its mines, plantations, and other assets. It should investigate its natural resources, devise a plan for their exploitation and development, and construct industries to maximize its profitability.

In countries where the private sector is predominantly engaged in the manufacture of a few consumer items for domestic consumption, steel, heavy electrical equipment, heavy chemicals, fertilizers, machine tools, and other materials are necessary. These industries are known for requiring significant investments and long gestation periods. As a result, private businesses are wary of entering these industries. As a result, it is the government’s job to build industries in these domains.

Some consumer goods industries, such as sugar and clothes, also need to be rationalized because they rely on obsolete machinery and procedures.

To achieve rapid economic development, however, export promotion and import substitution industries must be established. Furthermore, industries are concentrated in a few major cities, leaving the rest of the countryside backward and undeveloped.

Other key important areas are as follows 

  • Change in the organization
  • Social and economics overhead
  • Expansion of foreign trade
  • Monetary policies and fiscal policies

In Conclusion

To address all of these issues, the government must develop and implement a prudent industrial policy, agricultural development and well create a better institutional framework that provides the necessary incentives for the development of cottage, small-scale, and large-scale industries.

Industries should be decentralized for them to be distributed across all areas based on their factor endowments.


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Mankiw, N. G. (2009). Principles of Economics. (7th ed.). Mason, OH:

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M.L JHINGAN (1966) The Economics of Development and Planning 41st Edition



Mr. Trimisiyu Omotayo Lawal is working in Skyline University Nigeria as a Lecturer II in the Department of Economics. He has obtained his MHE Degree from Bayero University Kano

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