GOVERNMENT POLICY AND ECONOMIC GROWTH

Abstract

Economic growth rate determines the degree of development of developing countries over the long run. Market mechanism on the basis of supply-demand ensures optimal use of  production capacities which is the foundation of economic growth. However, in certain cases market     fails – market mechanism is unable to ensure optimal use of production capacity. Market failure makes    government intervention in economy necessary and the degree of this intervention depends on ample factors: state of the market economy, as well as the national strategy of economic development. Government’s role in the economy – this is the most debatable and delicate problem in the science of   economics. The article discusses some of the instruments used by the governments to intervene in the economy. These instruments include ensuring law supremacy, regulating, planning firm behavior, trade policy, direct ownership of means of production and etc. The author discusses the impact of these instruments and comes up with some recommendations.

Key words: market failure, public good, externalities, monopoly, asymmetric information,

Wagner’s law, kleptocracy.