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    Preconditions For Economic Growth

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    Vivian Lajara
    Economic freedom, including well-defined property rights, free markets, and low taxes and regulations, is a fundamental precondition for economic growth. Without protection of private property by the rule of law and ability to transact freely in markets, societies lack incentives for growth-producing activities. Both democratic and non-democratic systems can ensure economic freedom, provided they respect the rule of law and private property rights that allow markets to function by creating incentives to specialize, trade, save, invest, and innovate.

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    Preconditions For Economic Growth

    Uploaded by

    Vivian Lajara
    33 views9 pages
    Economic freedom, including well-defined property rights, free markets, and low taxes and regulations, is a fundamental precondition for economic growth. Without protection of private property by the rule of law and ability to transact freely in markets, societies lack incentives for growth-producing activities. Both democratic and non-democratic systems can ensure economic freedom, provided they respect the rule of law and private property rights that allow markets to function by creating incentives to specialize, trade, save, invest, and innovate.

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    Economic freedom, including well-defined property rights, free markets, and low taxes and regulations, is a fundamental precondition for economic growth. Without protection of private property by the rule of law and ability to transact freely in markets, societies lack incentives for growth-producing activities. Both democratic and non-democratic systems can ensure economic freedom, provided they respect the rule of law and private property rights that allow markets to function by creating incentives to specialize, trade, save, invest, and innovate.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    33 views9 pages

    Preconditions For Economic Growth

    Uploaded by

    Vivian Lajara
    Economic freedom, including well-defined property rights, free markets, and low taxes and regulations, is a fundamental precondition for economic growth. Without protection of private property by the rule of law and ability to transact freely in markets, societies lack incentives for growth-producing activities. Both democratic and non-democratic systems can ensure economic freedom, provided they respect the rule of law and private property rights that allow markets to function by creating incentives to specialize, trade, save, invest, and innovate.

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    PRECONDITIONS

    FOR ECONOMIC
    GROWTH
    The main reason economic growth is either
    absent or slow is that some societies lack the
    incentive system that encourages growth-
    producing activities. One of the fundamental
    preconditions for creating the incentives that
    lead to economic growth is economic
    freedom.
    to make personal choices, their private property is
    protected by the rule of law, and they are free to buy and
    sell in the market.

    The rule of law, an efficient legal system and the


    ability to enforce contracts essential
    foundations for creating economic freedom

    Impediments to economic freedom:


    Economic Corruption in the courts and government bureaucracy
    Freedom Barriers to trade such as import bans
    High taxes
    Stringent regulations on business such as health, safety
    and environmental regulations
    Restrictions to banks
    Labor market regulations that limit a firms ability to hire
    and lay off workers
    Illegal market, such as those that violate intellectual
    property rights
    No unique political systems is necessary to deliver
    economic freedom.

    Democratic systems do a good job, but the rule of


    law, not democracy is the key requirement for creating
    economic freedom.
    Economic
    Freedom Nondemocratic political systems that respect the
    rule of law can also work well.

    No country with economic freedom is economically


    poor, but many countries with low levels of economic
    freedom is stagnate.
    Economic freedom requires the protection of private property
    the factors of production and goods that people own.

    Property Rights the social arrangements that govern the


    protection of private property.

    Property rights includes:


    The rights to physical property (land, buildings and capital

    Property equipment)
    The rights to financial property (claims by one person against
    Rights another)
    The rights to intellectual property (such as inventions)

    Clearly established and enforced property rights incentive


    to work and save.

    If someone attempts to steal their property, a legal system will


    protect them. Such property rights also assure people that
    government itself will not confiscate their income or
    savings.
    Economic freedom also requires free markets.

    Buyers and sellers get information and do business with each


    other in markets.

    Market prices signals to buyers and sellers that create


    incentives to increase or decrease the quantities demand
    and supplied.

    Markets Markets enable people to trade and to save and invest.

    Markets cannot operate without property rights.


    Property rights and markets create incentives for people to:
    Specialize and trade
    Save and invest
    Expand their human capital
    Discover and apply new technologies
    To achieve faster economic growth, we must increase
    the growth rate of capital per hour labor,
    increase the growth rate of human capital, or
    increase the pace of technological advance. The
    Policies to main actions that government can take to achieve
    Achieve these objectives are:
    Create incentive mechanism
    Faster Encourage savings
    Growth Encourage research and development
    Encourage international trade
    Improve the quality education
    Economic growth occurs when the incentives to
    save, invest and innovate are strong.
    Create
    Incentive These incentives require property rights enforced by
    Mechanism well-functioning legal system. Property rights and a
    legal system are the key ingredients that are missing
    in many societies.
    Saving finances investments Capital
    Accumulation
    Encourage
    Savings Encouraging saving can increase the growth of
    capital and stimulate economic growth.

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