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Tuesday, October 31, 2006

 

Generating Economic Freedom

This article focuses on the recent election in Congo between Bemba and Kabila. The problem I find with this article is in what the two candidates are attempting to do which is that of creating economic prosperity. This article states that platform for the two candidates’ calls for basics such as electricity clean water, an end to corruption, and a greater share for the populace in the country's abundant mineral wealth. The belief that providing these essential elements to a society ridden with a corrupt government, economic controls and the diversion of public resources for personal gain will only spur medium growth probably not sustainable for a entire country.

Achieving higher per capital economic growth is possible even in low income countries. Research indicates that the best way for countries to increase economic growth is to adopt policies that promote economic freedom and the rule of law, both which are measured within the index of Economic Freedom. Countries that maintain polices that promote economic freedom such as monetary policy, provide an environment that generates trade and encourages entrepreneurial activity, which produces economic growth. Higher GDP growth rates are associated with improvements in a country's economic freedom. The more a country improves its economic freedom, the higher the average economic growth it experienced. Countries that consistently march toward improved economic freedom enjoy the most progress towards prosperity.

Why would economic freedom contribute to economic growth? With high taxation, corruption and trade barriers the country experiences a lag in economic growth. The more involved the government is in the economy the lower the chance that individuals, investors, and businesses will be able to gain because the costs of the private economic activity become higher. This tends to encourage specialized individuals to leave the country for better opportunities that do not contribute to GDP.

Providing assistance to a poor nation will not spur economic growth. Policies and institution is what should matter. Developing countries must create their own internal reforms by executing policies that encourage economic freedom. Unfortunately in many cases foreign assistance has dame development more difficult by encouraging corruption, and the continuance of bad policies.

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