Market Efficiency Providing – Development Economics

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Table of Contents

Role of government in building the economy to provide market efficiency
The pattern of the private sector the in developing countries
Corruption and poverty in developing countries
Areas where NGOs have a comparative advantage
BRAC model
References

Role of government in building the economy to provide market efficiency

Market efficiency implies that at a given point in time, the prices in the market should completely reflect the information available in the market. The concept is derived from the efficient market hypothesis. However, the information that is revealed by the market does not necessarily relate to financial matters but also other news such as political and social matters. The efficiency of a market can be achieved in a perfectly competitive market. At the equilibrium point of a perfectly efficient market, the market is considered to be efficient. At this point, there is no opportunity for mutual gain. Besides, any disturbance to the equilibrium point such as price ceiling will result in a welfare loss.

At this point, there is productive and static efficiency (Perloff, 2012). The government should contribute a lot in the economy to order to achieve economic efficiency of markets. First, the government needs to construct the entire necessary infrastructure such as airports, building, waterways, and bridges among others. Further, the government needs to put in place a number of institutional frameworks such as laws, regulatory authorities, and courts among others. However, setting up institutions is not adequate. The government also needs to intervene when the market is not functioning properly. The government needs to ensure that there is Pareto efficiency in the economy (Parkin, 2007).

The pattern of the private sector the in developing countries

The composition of the private sector in developing countries differs from that in developed countries. A number of countries prefer to invest in profitable private sectors to facilitate economic growth and development in terms of better living standards and the creation of employment opportunities. In developing countries, more than half of the private sector is engaged in informal activities. Most of these sectors are not registered with the various authorities. Also, these sectors do not pay taxes to the government. Besides, most women in business operate in the informal sector.

However, as the country develops, these small sectors transform to small and medium enterprises which are formal (Melvin & Boyes, 2010). These sectors contribute immensely to the development of a country especially in terms of job creation and government revenue. For the informal sector to achieve this transformation, then they need to be supported by the state so as to facilitate the transition and growth. The current composition of the private sector in developing countries is a key constraint towards building appropriate institutions for market efficiency. It is because the government does not have accurate data of the sector and thus cannot plan adequately for the institutions that are needed to ensure market efficiency. Also, the sector makes use of resources provided for by the government yet they do not contribute to the same in the form of taxes (Australian Government, 2012).

Corruption and poverty in developing countries

Corruption is viewed as an enemy of creation of wealth, justice and trust in the economy. It creates a vicious cycle in developing countries. In most economies, it can be observed that corruption defers, alters and averts resources and growth that is intended to benefit the whole nation (The World Bank, 2011). Corruption and poverty can be viewed from two perspectives, that is, poverty causes corruption while corruption excavates poverty. Thus, to improve the living standard of various people, corruption needs to be curtailed. An example is donor funding. It has been established that aids disbursed in developing countries with weak institutional frameworks often end up in the hands of few due to corruption. Thus, they do not benefit the targeted projects (Johnston, 2009).

Areas where NGOs have a comparative advantage

In various economies, the NGOs have been found to be successful in implementing a number of projects as compared to government and markets. NGOs are known to be efficient in carrying out the oppositional role and not operational roles in a country. In recent times, NGOs are considered to be efficient in providing assistance to AIDS sufferers, orphans, women, and indigenous people. Besides, NGOs are efficient in handling issues that surround food insecurity. Some of these issues cannot be adequately handled by the state or the market. Examples of NGOs are UKAID, USAID, and Action Aid.

BRAC model

BRAC model is a development program that makes use of the solidarity lending approach to change the life of people. The microcredit model requires individuals to make compulsory savings. The citizens can then be advanced loans from the savings. Besides, citizens are trained on a periodic basis for various businesses (Mankiw, 2009). Such as fisheries, social forestry, salt, and chicken among others. The model also advocates for the provision of non-formal primary education to families living under poverty. The other services that the citizens benefitted from through the model are public health, social development, disaster relief, ICT development, public health, and social development. The model has been successful in other countries such as Afghanistan, Sri Lanka, Pakistan, Tanzania, Uganda, South Sudan, Liberia, and Haiti (Ayers, 2003)

References

Australian Government. (2012). Sustainable development: Private sector development. Web.

Ayers, C. (2003). Microeconomics. UK: Pearson. Web.

Johnston, M. (2009). Poverty and corruption. Web.

Mankiw, G. (2009). Principles of microeconomics. USA: South Western Cengage Learning. Web.

Melvin, M. & Boyes, W. (2010). Microeconomics. USA: Joe Sabatino. Web.

Parkin, M. (2007). Economics. USA: University of Michigan. Web.

Perloff, J. (2012). Microeconomics. England: Pearson Education. Web.

The World Bank. (2011). Corruption and development assistance. Web.

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