Policies for Developing Nations

Policies for Developing Nations

Part 1

It is quite correct to say that development and economic growth are entirely different from each other. But they go hand in hand; meaning a less developed country has low economic growth, and a developed country has high economic growth. Developing countries face problems that circle or related to the three significant sources of economic growth. That is 1) The number of resources 2) Technology and 3) Institutions. In this paper I will cover India as a developing nation, the problems the country is facing and the necessary policies that should be implemented to boost its economic growth and living standards of her people.

Interestingly some of the problems faced by developing nations are the same problems facing developed countries, as the developing country’s HDI is much higher than back in the 19th and 20th century. The issues that I will discuss include unemployment, lack of entrepreneurial infrastructure, corruption, public health, and education, etc.

Unemployment is one of the problems facing most nations in the world if not all. The population growth rate in India grows at an alarming rate, which is higher than its economic growth rate — leading to a third of the world’s poor people coming from India and 37% of the total population living below the poverty line. Lack of skilled or semi-skilled labor contributing to the increased unemployment.

Lack of entrepreneurial infrastructure is another major problem facing entrepreneurs in India and also other developing nations. This includes small markets for so many entrepreneurs, highly risk-averse businesses and poor social and physical infrastructure. The third and most significant problem in India is corruption, which goes hand in hand with nepotism, tribalism, etc. which prevents the efficient use of resources. Especially from those in power, they first care for their own and those who funded them during campaigns and forgot all about the voter who perishes in poverty. Public health and education is another challenge in India where there is high illiteracy as well as low life expectancy. Educating the masses would be of high value as also it would curb the population growth which is the highest in the world. These are some of the few highlighted problems facing India among many others.


In the long-run growth of the economy and the income per person increases when the productivity factor is increased exogenously.

Short-term policies

Offering tax incentives to both foreign and local firms is increasing the capital investment which increases the growth rate temporarily. As this will affect the ratio of capital to labor, making it go up.

Long-term policies

Crackdown on government corruption by setting systems and institutions that will deal with the crime completely. This will go a long way and will have an impact on the economy in the long term as there will be an increase in the labor supply, and labor and capital will have a high level of productivity. A good example is China, which until today enjoys the systems that were put in place to deal with corruption. Finally the stimulation of research and development primarily in technology and agriculture. Which will lead to increased yield and production, e.g., Kenya invention of the mobile money transfer has really boosted their economy, and recently the World Bank declared it’s no longer a third world country but a middle-income country.

Least effective

Stimulating savings will not have any effect at all. As people cannot save what they do not have, this is because of low income. Secondly allowing free trade to encourage international trade will have least effect if not making the situation any worse, due to factors like dumping and competition from imports.

Part 2

The difference between modern growth theory and Solow model is that in the modern growth theory, technology is assumed to be output-augmenting while for the Solow model technology is assumed to be labor-augmenting. Hence;

Unrestricted international aid to help build a power plant will assist in the breaking of the poverty cycle by providing the necessary power required to run industries. Hence giving way to economic growth, this policy is consistent with the Solow model for the role of technology in labor.

Providing aid for a power plant that is dependent on democratic reforms. This policy will increase power in the country; hence industries will be running at a cheaper cost and at the same time the plant is dependent on the democratic reforms of that country. Therefore the plant will come with changes in the governing of that particular country, tying this policy with both modern and the Solow economic model.

Reductions in trade restrictions; creating a free trade zone, which has neither elements of the modern growth theory or the Solow model.