22.214.171.124 Foundations for Economic Growth in Developing Countries
Economic growth in developing countries depends upon them having sound governance, to attract foreign investment, and basic infrastructure
International aid alone cannot solve the problem of poverty. Further measures are needed for their economies to grow:
● Wealth creation in developing countries is dependent upon them having appropriate economic governance: particularly in their regulatory structure (3.3.1) and macroeconomic policies (3.3.8). Leland B. Yeager’s book, Free Trade: America’s Opportunity, includes a section on Infant Industries And Economic Development which lists several necessary economic factors:
“…venturesome business enterprisers, a social and ideological climate not hostile to business enterprise, capital for productive investment, a tax system that encourages enterprise and productive use of resources, and—perhaps—governmental development of education and health programs and certain public utilities.”
● As described previously, facilities and infrastructure are essential for wealth creation (3.2.8). Lack of these foundations is often an impediment to economic growth in developing countries.
● One of the problems that poor countries face, in getting their economies to grow, is lack of the finance to make the initial investments. Foreign companies can set up in less developed economies, though, bringing with them wealth creation opportunities which could not otherwise be realised: so-called Foreign Direct Investment (FDI). There is a need for secure property rights, to attract these companies (who usually come for their own self-interest rather than any charitable intent). And even if the profits return to the countries of the owners, the employees’ share of wealth and the resulting consumer demand can make a huge contribution to a developing economy.
● New forms of FDI are emerging. Paul Romer’s article, For richer, for poorer, included the suggestion that charter cities – which can be separately-governed enclaves within poorer countries, like Hong Kong which flourishes on the edge of China – might provide centres for economic growth and models for governance.
These mechanisms can all contribute to economic growth in developing countries, but further growth depends on trade with the rest of the world – as reviewed next (126.96.36.199).
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3582.htm