CENTRE FOR NEW AND EMERGING MARKETS AND …facultyresearch.london.edu/docs/dp13.pdf;lex 6s;lex 6sp ip 7lsyphi 7lsyph xlxli i+s+sz zivr ivrq q iir rx 4px 4pe e] rm]mr xlixli 4 4vshy

CENTRE FOR NEW AND EMERGING MARKETS

Discussion Paper SeriesNumber 13

THE MAJOR DRIVING FORCES FOR RAPID AND SUSTAINED DEVELOPMENT

Saul Estrin and Alan BevanLondon Business School

Simon CommanderEBRD/London Business School

August 00

ACKNOWLEDGEMENTS8LMW HSGYQIRX [EW TVITEVIH SR FILEPJ SJ &4 %QSGS TPG ERH MW RSX XS FI UYSXIH

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Contents

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��� 4VMZEXI :IVWYW 7XEXI 3[RIVWLMT SJ *MVQW ��

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����� 4VMZEXMWEXMSR ��

���� )RXVITVIRIYVW)RXVITVIRIYVWLLMTMT ��

���� 4SPMG]4SPMG] --QTPQTPMMGGEEXMSRW JSVXMSRW JSV +S+SZZIVIVRRQIQIRRXX ��

66IJIJIIVVIRIRGGIWIW ��

)RHRSX)RHRSXIIWW ��

8EFPIW ERH8EFPIW ERH &S&S\\IWIW

&S\ ��� 6YWWMER 4VMZEXMWEXMSR ��

8EFPI ��� ,YQER 'ETMXEP (IZIPSTQIRX ERH 7YWXEMREFPI +VS[XL ��

8EFPI ��� 4L]WMGEP 'ETMXEP (IZIPSTQIRX ERH 7YWXEMREFPI +VS[XL ��

ii

Authors

7MQSR 'S7MQSR 'SQQQERHQERHIIVV LEW LEH GSRWMHIVEFPI I\TIVMIRGI [SVOMRK SR HIZIPSTQIRX MWWYIW� ,I MW

GYVVIRXP] 7IRMSV %HZMWIV EX XLI )YVSTIER &ERO JSV 6IGSRWXVYGXMSR ERH (IZIPSTQIRX� ERH WMRGI

���� (MVIGXSV SJ XLI 'IRXVI JSV 2I[ ERH )QIVKMRK 1EVOIXW EX XLI 0SRHSR &YWMRIWW 7GLSSP�

4VIZMSYWP] LI [EW FEWIH MR ;EWLMRKXSR (�'� [LIVI LI [SVOIH EX XLI ;SVPH &ERO� ,MW

VIWIEVGL MRXIVIWXW MRGPYHI PEFSYV IGSRSQMGW ERH GSQTEVEXMZI IGSRSQMG W]WXIQW� 6IGIRX

TYFPMGEXMSRW LEZI JSGYWWIH SR MRIUYEPMX] ERH TSZIVX] MR HIZIPSTMRK GSYRXVMIW� SR IRXIVTVMWI

VIWXVYGXYVMRK ERH TIVJSVQERGI ERH SR XLI H]REQMGW SJ YRIQTPS]QIRX MR XVERWMXMSR IGSRSQMIW�

,MW QSWX VIGIRX FSSO [EW )RXIVTVMWI 6IWXVYGXYVMRK ERH 9RIQTPS]QIRX MR 1SHIPW SJ

8VERWMXMSR �;SVPH &ERO� �����

%PER%PER %%�� &&IIZZERER NSMRIH XLI 0SRHSR &YWMRIWW 7GLSSP MR ����� [LIVI LI MW E 6IWIEVGL *IPPS[ EX

XLI 'IRXVI JSV 2I[ ERH )QIVKMRK 1EVOIXW� ,I SFXEMRIH LMW 4L( MR ���� JSV LMW XLIWMW

D'SQTYXEFPI +IRIVEP )UYMPMFVMYQ 1SHIPPMRK SJ XLI ,YRKEVMER )GSRSQ] MR 8VERWMXMSR� ,MW

TSWX�HSGXSVEP VIWIEVGL LEW FIIR TVMQEVMP] GSRGIVRIH [MXL IGSRSQMG VIJSVQ MR GIRXVEP ERH

IEWXIVR )YVSTI ERH XLI *SVQIV 7SZMIX 9RMSR� TEVXMGYPEVP]� IRXIVTVMWI TIVJSVQERGI ERH

VIWXVYGXYVMRK HYVMRK XVERWMXMSR� JSVIMKR HMVIGX MRZIWXQIRX ERH )9 EGGIWWMSR� ,MW EHHMXMSREP

VIWIEVGL MRXIVIWXW MRGPYHI GSVTSVEXI JMRERGI MR HIZIPSTIH ERH HIZIPSTMRK QEVOIX IGSRSQMIW�

,MW VIGIRX TYFPMGEXMSRW MRGPYHI 'ETMXEP 7XVYGXYVI MR XLI 9RMXIH /MRKHSQ � % (IGSQTSWMXMSREP

%REP]WMW �JSVXLGSQMRK MR %TTPMIH *MRERGMEP )GSRSQMGW� ������ )RXIVTVMWI ERH &ERO

6IWXVYGXYVMRK� 4VSKVIWW� 4VSFPIQW ERH 4SPMGMIW �92�)') )GSRSQMG 7YVZI] SJ )YVSTI ����2S� ������ ,I LEW EGXIH EW GSRWYPXERX�EREP]WX XS ZEVMSYW GSVTSVEXI GPMIRXW MRZIWXMRK MR GIRXVEPERH IEWXIVR )YVSTI� ERH KSZIVRQIRX EKIRGMIW�

7EYP7EYP ))WXWXVVMRMR NSMRIH XLI 0SRHSR &YWMRIWW 7GLSSP MR ����� [LIVI LI MW E 4VSJIWWSV SJ )GSRSQMGWERH (ITYX] (IER �*EGYPX] ERH %GEHIQMG 4PERRMRK�� ,MW VIWIEVGL GSRGIRXVEXIW SR XLI TVSGIWW

SJ IGSRSQMG VIJSVQ ERH XVERWJSVQEXMSR MR 'IRXVEP ERH )EWXIVR )YVSTI� ,I LEW TEVXMGYPEVP]

JSGYWIH SR UYIWXMSRW SJ TVMZEXM^EXMSR� GSQTER] VIWXVYGXYVMRK ERH HMJJIVIRX S[RIVWLMT JSVQW�

6IGIRX TYFPMGEXMSRW MRGPYHI 4VMZEXM^EXMSR MR 'IRXVEP ERH )EWXIVR )YVSTI �0SRKQERW� ������

*SVIMKR (MVIGX -RZIWXQIRX MRXS 'IRXVEP )YVSTI �*VERGIW 4MRXIV� ����� ERH 'SQTIXMXMSR� 8VEHI

ERH -RXIKVEXMSR MR XLI )YVSTIER 9RMSR �)H[EVH )PKEV� ������ ,I LEW [SVOIH EW 'SRWYPXERX

SR XLI IGSRSQMG GLERKIW MR XLI JSVQIV GSQQYRMWX FPSG JSV XLI ;SVPH &ERO� 3)'( ERH

)YVSTIER 'SQQYRMX]� EW [IPP EW JSV E ZEVMIX] SJ GSQTERMIW MRZIWXMRK MR XLI VIKMSR�

1. Introduction

-R XLI HIGEHIW MQQIHMEXIP] JSPPS[MRK XLI 7IGSRH ;SVPH ;EV� MX [EW KIRIVEPP] EWWYQIH XLEX

MRGSQI TIV LIEH PIZIPW EGVSWW XLI [SVPH [SYPH GSRZIVKI� 8LI IGSRSQMIW SJ ;IWXIVR )YVSTI

ERH .ETER FIKER E HVEQEXMG KVS[XL WTYVX XS GEXGL YT XLI 9RMXIH 7XEXIW� 8LI GSQQYRMWX FPSGO

WLS[IH WYWXEMRIH LMKL KVS[XL VEXIW� ERH JSPPS[MRK MRHITIRHIRGI� XLIVI [EW KVIEX STXMQMWQ

EFSYX KVS[XL TVSWTIGXW MR HIZIPSTMRK IGSRSQMIW�

-R XLI TEWX X[IRX] ]IEVW� XLI IGSRSQMG HIZIPSTQIRX TVSGIWW LEW MRWXIEH FMJYVGEXIH VEXLIV

WLEVTP]� % KVSYT SJ HIZIPSTMRK GSYRXVMIW� TVMQEVMP] MR 7SYXL )EWX %WME� LEZI WYGGIWWJYPP]

IWXEFPMWLIH ZIV] VETMH KVS[XL� ERH MR WSQI GEWIW LEZI ZMVXYEPP] GEYKLX YT [MXL XLI ;IWX� %X

XLI WEQI XMQI� XLI IGSRSQMIW SJ XLI 'IRXVEP ERH )EWXIVR )YVSTI LEZI GSPPETWIH ERH QSWX

VIQEMRMRK HIZIPSTMRK GSYRXVMIW LEZI RSX ]IX IWXEFPMWLIH WYWXEMRIH VETMH IGSRSQMG KVS[XL�

-RHIIH MR WSQI GSYRXVMIW� IWTIGMEPP] MR WYF�7ELEVER %JVMGE� XLIVI LEW FIIR WSQI VIKVIWWMSR MR

TIV GETMXE +(4�

-R XLMW TETIV� [I WIIO XS WYQQEVMWI XLI TVMRGMTEP PIWWSRW JVSQ XLMW KVS[XL I\TIVMIRGI� ;I

I\TPSVI XLI QEMR JEGXSVW [LMGL LEZI WXMQYPEXIH IRLERGIH KVS[XL MR XLI QSVI WYGGIWWJYP

GSYRXVMIW� ERH MHIRXMJ] XLI TSPMG] ERH FYWMRIWW IRZMVSRQIRXW [LMGL LEZI TVIZIRXIH WYWXEMRIH

HIZIPSTQIRX MR SXLIVW� 3YV JSGYW MW TVMQEVMP] SR TSPMGMIW [LMGL YRPIEWL XLI TSXIRXMEP SJ XLI

JVII QEVOIX XLVSYKL GSQTIXMXMSR� ERH [LMGL WXMQYPEXI MRRSZEXMSR� IJJMGMIRG] ERH

IRXVITVIRIYVWLMT�

8LIVI EVI JSYV JYVXLIV WIGXMSRW� ;I JMVWX GSRGIRXVEXI SR XLI PSRK VYR WYTTP] JEGXSVW XLEX LEZI

FIIR WLS[R XS FI EWWSGMEXIH [MXL JEWXIV KVS[XL r IHYGEXMSR� LIEPXL� VIHYGIH FMVXL VEXIW� LMKL

WEZMRKW ERH MRZIWXQIRX VEXIW ERH ER IJJMGMIRX HIGIRXVEPMWIH GETMXEP QEVOIX� 8LI IGSRSQMG

IRZMVSRQIRX MR [LMGL XLIWI PSRK VYR JEGXSVW STIVEXI MW EPWS GVYGMEP LS[IZIV� ,IVI [I PSSO XS

XLI VSPI SJ PE[� IRJSVGIQIRX SJ GSRXVEGXW ERH PMQMXW XS FYVIEYGVEXMG MRXIVZIRXMSR ERH

GSVVYTXMSR� ;I KS SR XS HIPMRIEXI XLI QSWX IJJMGMIRX VSPI JSV XLI KSZIVRQIRX MR XLI

HIZIPSTQIRX TVSGIWW� RSX XS GSRXVSP SV HMVIGX MRZIWXQIRX SV KVS[XL FYX XS WYTTSVX ERH

IRLERGI XLI IJJMGMIRX STIVEXMSR SJ QEVOIXW� 4VMZEXI WIGXSV HIZIPSTQIRX� ERH TVMZEXMWEXMSR MW

WIIR EW TEVXMGYPEVP] MQTSVXERX� XLSYKL SRP] [LIR GSQFMRIH [MXL IJJIGXMZI GSQTIXMXMSR� 8LMW

LMKLPMKLXW XLI GVYGMEP VSPI SJ IRXVITVIRIYVWLMT MR XLI KVS[XL TVSGIWW� ERH [I WYKKIWX [E]W XLMW

GSYPH FI JSWXIVIH F] KSZIVRQIRX TSPMG] ERH EXXMXYHIW� 4SPMG] GSRGPYWMSRW EVI HVE[R MR XLI

JMREP WIGXMSR�

2

2. Long Run Supply Factors

2.1 Introduction

-R XLI PSRK XIVQ� XLI WYWXEMRIH HIZIPSTQIRX SJ ER IGSRSQ] LEW FIIR WLS[R XS FI

JYRHEQIRXEPP] HITIRHIRX YTSR X[S JEGXSVW� XLI PIZIP ERH UYEPMX] SJ XLI PEFSYV JSVGI ERH SJ XLI

WXSGO SJ QEGLMRIV] ERH IUYMTQIRX� )ZMHIRGI TSMRXW XS XLI JEGX XLEX GSYRXVMIW [LMGL LEZI E

LIEPXL] ERH WOMPPIH PEFSYV JSVGI� ERH LEZI IRKEKIH MR EGGYQYPEXMSR SJ WYMXEFPI QEGLMRIV] ERH

IUYMTQIRX XIRH XS FI XLSWI [LMGL LEZI EGLMIZIH WYWXEMREFPI LMKLIV KVS[XL VEXIW�

'SRWIUYIRXP] MR XLMW WIGXMSR [I I\EQMRI XLI IZMHIRGI EFSYX XLI VSPI SJ LYQER ERH TL]WMGEP

GETMXEP� ERH LMKLPMKLX TSPMGMIW F] [LMGL KVS[XL ERH HIZIPSTQIRX GER FI IRGSYVEKIH�

8LI WIGXMSR FIPS[ HIEPW [MXL EVKYEFP] XLI QSWX MQTSVXERX IPIQIRX MR WYWXEMREFPI HIZIPSTQIRX

� TISTPI� SV LYQER GETMXEP� ;LMPI I\TIVMIRGI WYKKIWXW XLEX IHYGEXMSR MQTEGXW HMVIGXP] SR

[IEPXL GVIEXMSR ZME XLI HIZIPSTQIRX SJ WOMPPW� MWWYIW SJ LIEPXL ERH JIVXMPMX] EVI EPWS SJ

WMKRMJMGERGI� 8LIVI EVI WSQI GPIEV TSPMG] TVIWGVMTXMSRW JSV KSZIVRQIRXW� IWTIGMEPP] MR XLI

JYRHMRK SJ WOMPPW ERH XVEMRMRK� ;I KS SR XS GSRWMHIV TL]WMGEP GETMXEP� GETMXEP WXSGO I\TERWMSR MW

E YRMZIVWEPP] EGGITXIH HVMZMRK JSVGI SJ WYWXEMREFPI HIZIPSTQIRX� ;I GSRWMHIV XLI VSPI SJ

KSZIVRQIRX MR GETMXEP EGGYQYPEXMSR ERH MR EGLMIZMRK GSRHMXMSRW XS JSWXIV ER IRZMVSRQIRX

WYTTSVXMZI SJ MRZIWXQIRX�

2.2 Human Capital

)\MWXMRK IZMHIRGI HIVMZIH JVSQ LMWXSVMGEP HEXE MRHMGEXIW XLEX E LIEPXL] ERH WOMPPIH PEFSYV JSVGI

MW GVYGMEP XS WYWXEMREFPI IGSRSQMG KVS[XL� -J ER]XLMRK� KPSFEPMWEXMSR ERH XLI KVS[XL SJ XLI

DORS[PIHKI IGSRSQ] QIER XLEX LYQER GETMXEP MW PMOIP] XS FI SJ IZIR KVIEXIV WMKRMJMGERGI MR

XLI ��WX

GIRXYV]�

:EVMSYW WXYHMIW MRHMGEXI XLI MQTSVXERGI SJ XLI PIZIP ERH UYEPMX] SJ IHYGEXMSR� ,S[IZIV�

TVMQEV] WGLSSP IHYGEXMSR MW RSX XLI OI] JEGXSV� [LMPI XLMW MW E TVI�VIUYMWMXI JSV JYVXLIV TVSKVIWW

XLVSYKL XLI IHYGEXMSREP W]WXIQ� XLI EZEMPEFPI IZMHIRGI MPPYWXVEXIW XLEX MX MW WIGSRHEV] WGLSSPMRK

XLEX LEW XLI QSWX WMKRMJMGERX MQTEGX YTSR KVS[XL�

� % PEVKI RYQFIV SJ WXYHMIW WYKKIWX XLEX XLI

GEYWEP PMRO FIX[IIR IHYGEXMSR ERH KVS[XL MW PMOIP] XS HMJJIV FIX[IIR QEPIW ERH JIQEPIW�

� %W

8EFPI ��� FIPS[ MPPYWXVEXIW� E WXYH] SJ ��� GSYRXVMIW SZIV XLI TIVMSH ���� XS ���� JMRHW XLEX

XLIVI MW PMOIP] XS FI E WYFWXERXMEP QEVKMREP KEMR JVSQ IEGL ]IEV SJ EHHMXMSREP WIGSRHEV]�

WGLSSPMRK VIGIMZIH F] ]SYRK QEPIW� &] GSRXVEWX� WXYHMIW WYKKIWXW XLEX JIQEPI WGLSSPMRK MW SRP]

PMOIP] XS LEZI ER MRHMVIGX MQTEGX YTSR KVS[XL� ZME VIHYGXMSRW MR JIVXMPMX] VEXIW�

� 8LI VIWYPXW SJ

3

SRI WYGL WXYH] EVI TVIWIRXIH MR XLI WIGSRH VS[ SJ 8EFPI ��� FIPS[� -R XLMW IZIRX XLI

GSRWIUYIRX VIHYGXMSR MR XLI VEXI SJ TSTYPEXMSR MRGVIEWI ETTIEVW XS MRGVIEWI KVS[XL VEXIW EW E

VIWYPX SJ IEGL MRHMZMHYEP LEZMRK QSVI LYQER GETMXEP HIZIPSTQIRX STTSVXYRMXMIW ERH GETMXEP

IUYMTQIRX EZEMPEFPI XS XLIQ� *YVXLIVQSVI� F] IREFPMRK MRGVIEWIH JIQEPI TEVXMGMTEXMSR MR XLI

PEFSYV JSVGI� VIHYGXMSRW MR JIVXMPMX] VEXIW LEZI XLI TSXIRXMEP XS MRGVIEWI XLI EZEMPEFPI WXSGO SJ

WOMPPIH PEFSYV ERH LIRGI MRGVIEWI XLI VEXI SJ WYWXEMREFPI KVS[XL�

8S WSQI I\XIRX WYGL E VIWYPX MW PMOIP] XS FI WIPJ�VIMRJSVGMRK EW JIVXMPMX] VEXIW EVI X]TMGEPP] JSYRH

XS VIHYGI [MXL MRGVIEWIW MR MRGSQI JSV X[S VIEWSRW� �M� MRGVIEWIW MR MRGSQI MQTP] XLEX XLI GSWX

SJ JIVXMPMX] VMWIW MR XIVQW SJ JSVKSRI IEVRMRKW� ERH �MM� TEVIRXW MR LMKLIV MRGSQI IGSRSQMIW XIRH

XS FI PIWW VIPMERX YTSR TVSZMWMSR SJ XLIMV JMRERGMEP WIGYVMX] F] XLIMV SJJ�WTVMRK� ,IRGI XLI JMREP

KEMRW QE] FI QSVI XLER WMQTP] ZME VIHYGXMSRW MR JIVXMPMX] VEXIW�

,S[IZIV� SRI HMJJMGYPX] [MXL QER] SJ XLI EZEMPEFPI WXYHMIW MW E JEMPYVI XS IJJIGXMZIP] GSRXVSP JSV

XLI UYEPMX] SJ IHYGEXMSR� 7IZIVEP WXYHMIW HS EXXIQTX XS TVS\] JSV UYEPMX] SJ IHYGEXMSR F]

GSRWMHIVMRK EHHMXMSREP MRHMGEXSVW� 9RJSVXYREXIP] TVS\MIW WYGL EW IHYGEXMSR WTIRHMRK TIV TYTMP

JEMP XS QIEWYVI XLI IJJIGXMZIRIWW SJ XLI I\TIRHMXYVI� [LMPI WXYHMIW [LMGL YXMPMWI HEXE SR WXYHIRX�

XIEGLIV VEXMSW GETXYVI SRP] SRI EWTIGX SJ IHYGEXMSREP UYEPMX]� 8LI UYEPMX] SJ IHYGEXMSR VIGIMZIH

MW GPIEVP] HITIRHIRX SR E LSWX SJ EHHMXMSREP JEGXSVW WYGL EW XLI UYEPMX] SJ XLI XIEGLMRK WXEJJ ERH

MRJVEWXVYGXYVI� EGGIWW XS ETTVSTVMEXI QEXIVMEPW� XS MRJSVQEXMSR XIGLRSPSK] �ER I\XVIQIP]

MQTSVXERX JIEXYVI SJ IHYGEXMSR ERH XVEMRMRK MR XLI ��WX

GIRXYV]� ERH WS SR� 8LIVI MW RS HSYFX

XLEX� [LMPI MRGVIEWMRK TEVXMGMTEXMSR MR IHYGEXMSR MW IWWIRXMEP� VEMWMRK XLI UYEPMX] SJ XLI

IHYGEXMSR XLEX TEVXMGMTEXMRK MRHMZMHYEPW VIGIMZI MW EPWS I\XVIQIP] MQTSVXERX�

)EGL SJ XLIWI JEGXSVW LEW LEH ER MQTSVXERX VSPI XS TPE] MR XLI VETMH HIZIPSTQIRX SJ XLI 2I[P]

-RHYWXVMEPMWIH 'SYRXVMIW �2-'W� SJ 7SYXL )EWX %WME� %R I\XVIQIP] HIXEMPIH WXYH] SJ XLI 2-'W

JMRHW XLIQ XS LEZI FIIR GLEVEGXIVMWIH F] E VETMH MRGVIEWI MR IHYGEXMSREP EXXEMRQIRX ERH

TEVXMGMTEXMSR MR XLI PEFSYV JSVGI�

� 8LI EZEMPEFPI WXSGO SJ LYQER GETMXEP [EW MRGVIEWIH F] ZMVXYI

SJ XLI JEGX XLEX MR ,SRK /SRK� 7SYXL /SVIE ERH 8EM[ER XLI TVSTSVXMSR SJ XLI [SVOMRK

TSTYPEXMSR [MXL EX PIEWX E WIGSRHEV] IHYGEXMSR MRGVIEWIH EPQSWX XLVIIJSPH� [LMPI XLEX MR

7MRKETSVI QSVI XLER UYEHVYTPIH� FIX[IIR ���� ERH ����� *YVXLIVQSVI IEGL IGSRSQ]

I\TIVMIRGIH E WMKRMJMGERX MRGVIEWI MR XLI EZEMPEFPI WXSGO SJ WOMPPIH PEFSYV� EW E HIGPMRI MR FMVXL

VEXIW PIH XS E WMKRMJMGERX MRGVIEWI MR JIQEPI PEFSYV JSVGI TEVXMGMTEXMSR VEXIW�

%W XLI VIWYPX MR VS[ XLVII SJ 8EFPI ��� MPPYWXVEXIW� WXYHMIW EPWS MRHMGEXI XLI WMKRMJMGERGI SJ PMJI

I\TIGXERG] EX FMVXL JSV VIEP TIV GETMXE +(4 KVS[XL�

� ,IRGI WYWXEMREFPI KVS[XL ETTIEVW XS

4

VIUYMVI RSX SRP] E WOMPPIH� FYX E LIEPXL] PEFSYV JSVGI� 8LMW TVSFEFP] VIJPIGXW XLI JEGX XLEX

MRGVIEWIH PMJI I\TIGXERG] EPPS[W XLI FIRIJMXW SJ IHYGEXMSR ERH XVEMRMRK XS FI VIEPMWIH JSV E

PSRKIV TIVMSH�

,IRGI JSV IQIVKMRK QEVOIX IGSRSQMIW� XLI TVMQEV] GLEPPIRKI MW XS MQTVSZI XLI UYEPMX] SJ

LIEPXL ERH IHYGEXMSREP EXXEMRQIRX SJ XLI TSTYPEXMSR� ERH XS I\TERH TEVXMGMTEXMSR VEXIW�

%GGSVHMRKP]� XLIVI EVI WIZIVEP MWWYIW [LMGL [I WYKKIWX KSZIVRQIRX TSPMG] WLSYPH WIIO XS

EHHVIWW�

• 8S MRGVIEWI WIGSRHEV]�WGLSSPMRK TEVXMGMTEXMSR VEXIW� TIVLETW F] TVSZMHMRK [IPJEVI VIPMIJ XS

GSQTIRWEXI JSV PSWW SJ JEQMP] MRGSQI [LMPWX WGLSSPMRK�

• 8S VEMWI XLI UYEPMX] SJ IHYGEXMSR F] MQTVSZMRK MRJVEWXVYGXYVI �TEVXMGYPEVP] EGGIWW XS

XIGLRSPSK]�� VIHYGMRK GPEWW WM^IW ERH WXYHIRX�XIEGLIV VEXMSW� ERH MQTVSZMRK UYEPMX] SJ

XIEGLIVW�

• 8S IRGSYVEKI IHYGEXMSR MR LIEPXL ERH JIVXMPMX] MWWYIW MR SVHIV XS VIHYGI TSTYPEXMSR KVS[XL�

MRGVIEWI JIQEPI TEVXMGMTEXMSR MR XLI PEFSYV JSVGI ERH VEMWI PMJI I\TIGXERG]�

• 8S IRKEKI IRH�YWIVW SJ LIEPXL ERH IHYGEXMSR WIVZMGIW� TYFPMG�TVMZEXI TEVXRIVWLMTW LEZI

FIIR WLS[R XS FI EHZERXEKISYW MR XIVQW SJ LMKL UYEPMX] SJ TVSZMWMSR ERH TEVXMGMTEXMSR�

2.3 Physical Capital

;LMPI MRGVIEWIW MR LYQER GETMXEP ERH PEFSYV JSVGI TEVXMGMTEXMSR ETTIEV LMKLP] MRJPYIRXMEP�

WXYHMIW WYKKIWX XLEX TL]WMGEP GETMXEP EGGYQYPEXMSR LEW ER IZIR QSVI VSFYWX MRJPYIRGI SR

WYWXEMREFPI IGSRSQMG KVS[XL MR XLI PSRK�VYR� )ZMHIRGI JVSQ XLI 2-'W MPPYWXVEXI XLEX GETMXEP

EGGYQYPEXMSR GSRXVMFYXIH XS XLIMV VETMH KVS[XL� [MXL WMKRMJMGERX MRGVIEWIW MR XLI GSRWXERX

MRZIWXQIRX XS +(4 VEXMS EWWSGMEXIH [MXL MRGVIEWIW MR KVS[XL MR EPP 2-'W� SXLIV XLER ,SRK

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+(4 KVS[XL� %W VIKEVHW JEGXSVW XLEX MRJPYIRGI MRZIWXQIRX MXWIPJ� SRI WXYH] SJ ��� GSYRXVMIW

5

SZIV XLI TIVMSH ���� XS ���� JMRHW XVEHI XS FI TSWMXMZIP] EWWSGMEXIH [MXL MRZIWXQIRX�

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IHYGEXMSR ERH HIJIRGI � LEW EX FIWX PMQMXIH ERH JVIUYIRXP] RIKEXMZI VITIVGYWWMSRW JSV +(4

KVS[XL� IMXLIV HMVIGXP]��

SV XLVSYKL HMWGSYVEKMRK MRZIWXQIRX EGXMZMX]��

EW MRHMGEXIH MR XLI

WIGSRH VS[ SJ 8EFPI ��� FIPS[�

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MRXIVZIRXMSR QE] FI HIXVMQIRXEP XS KVS[XL� 6IWYPXW MRHMGEXMRK XLEX MRGSQI MRIUYEPMX] LEW E

RIKEXMZI MRJPYIRGI YTSR IGSRSQMG KVS[XL LEZI FIIR MRXIVTVIXIH EW WYKKIWXMRK XLEX TVIWWYVI JSV

TYFPMG VIHMWXVMFYXMSR MRHYGIW HMWXSVXMSRW XS XLI IGSRSQ] [LMGL VIHYGI KVS[XL��

� *YVXLIVQSVI�

XLIVI MW IQTMVMGEP IZMHIRGI XLEX MRIUYEPMX] SJ PERH S[RIVWLMT RIKEXMZIP] EJJIGXW KVS[XL�

6

MQTP]MRK XLEX GSYRXVMIW XLEX LEZI IRKEKIH MR PERH VIJSVQ WLSYPH I\TIVMIRGI LMKLIV KVS[XL

VEXIW��

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QMRMQMWI GSVVYTX TVEGXMGIW� %PXLSYKL MRXYMXMZIP] KSZIVRQIRX MRZSPZIQIRX MR TVMZEXI QEVOIXW

WIIQW PMOIP] XS FI EWWSGMEXIH [MXL GSVVYTX TVEGXMGIW� VSFYWX IQTMVMGEP IZMHIRGI MW PMQMXIH�

2SRIXLIPIWW� WIZIVEP WXYHMIW LEZI JSYRH E WMKRMJMGERX RIKEXMZI GSVVIPEXMSR FIX[IIR JMWGEP

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JVIIHSQ��

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FI XLEX PS[ GSQTIXMXMSR MRHYGIW MRGVIEWIH IGSRSQMG VIRXW ERH LIRGI XLI MRGIRXMZI XS IRKEKI MR

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7XYHMIW WYKKIWX XLEX FYVIEYGVEXMG GSVVYTXMSR LEW E VSFYWX RIKEXMZI MRJPYIRGI YTSR MRZIWXQIRX

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MRIJJMGMIRG]��

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FIIR [IEO � WYKKIWXMRK XLEX GSVVYTXMSR MRJPYIRGIW +(4 KVS[XL F] VIHYGMRK EGGYQYPEXMSR SJ

TL]WMGEP GETMXEP VEXLIV XLER HMVIGXP] MQTEGXMRK YTSR KVS[XL� 7MQMPEVP]� WXYHMIW F] 1EYVS��

LEZI JSYRH XLEX GSVVYTXMSR LEW FIIR EWWSGMEXIH [MXL VIHYGIH I\TIRHMXYVI SR IHYGEXMSR � E

JMRHMRK XLEX LI NYWXMJMIW F] GPEMQMRK XLEX I\TIRHMXYVI SR IHYGEXMSR TVSZMHIW PS[IV

STTSVXYRMXMIW JSV TYFPMG SJJMGMEPW XS VIGIMZI FVMFI XLER SXLIV JSVQW SJ TYFPMG I\TIRHMXYVI� -R

EHHMXMSR VIWIEVGLIVW LEZI JSYRH IZMHIRGI WYKKIWXMRK XLEX GSVVYTXMSR GSRXVMFYXIW XS MRIUYEPMX]

MR IHYGEXMSR� PERH HMWXVMFYXMSR ERH MRGSQI� EKEMR LS[IZIV� XLI HMVIGXMSR SJ GEYWEPMX] MR XLMW

GEWI MW YRGPIEV� EW MRIUYEPMX] QE] MXWIPJ TVSQSXI GSVVYTXMSR�

7

*YVXLIVQSVI XLI IWXEFPMWLQIRX SJ PS[ GSVVYTXMSR ERH E PIZIP TPE]MRK JMIPH JSV EPP IGSRSQMG

EKIRXW� FSXL HSQIWXMG ERH JSVIMKR� EVI SJ JYRHEQIRXEP MQTSVXERGI MJ E GSYRXV] MW XS IRGSYVEKI

JSVIMKR HMVIGX MRZIWXQIRX �*(-�� 8LI I\TIVMIRGIW SJ QER] HIZIPSTMRK IGSRSQMIW FIEV XIWXEQIRX

XS XLI RIIH XS IRWYVI XLEX KEMRW JVSQ MRZIWXQIRX [MPP RSX FI YRPE[JYPP] I\TVSTVMEXIH MJ *(- MW

XS FI IRGSYVEKIH� +MZIR XLI TSXIRXMEP XIGLRSPSKMGEP PIETJVSKKMRK XLEX GER FI MRHYGIH F]

JSVIMKR MRZSPZIQIRX MR XLMW QERRIV� IWXEFPMWLMRK IREFPMRK GSRHMXMSRW LEW XLI TSXIRXMEP XS RSX

SRP] I\TERH XLI GETMXEP WXSGO FYX EPWS XS LEVRIWW VETMH XIGLRMGEP TVSKVIWW� ;I VIXYVR XS XLIWI

MWWYIW FIPS[� ,IVI [I QIVIP] RSXI XLEX E WXYH] SJ XSXEP GETMXEP MRJPS[W� MRGPYHMRK *(-� JMRHW

XLEX GSVVYTXMSR HIGVIEWIW *(- ERH IWXMQEXIW XLEX [IVI 'SPSQFME XS VIHYGI GSVVYTXMSR XS XLI

PIZIP SJ XLI 9RMXIH /MRKHSQ� MX [SYPH MRGVIEWI RIX GETMXEP MRJPS[W F] � TIVGIRX SJ +(4��

�

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HIZIPSTQIRX SJ MRZIWXQIRX EGXMZMXMIW� VIPMIW JYRHEQIRXEPP] YTSR IWXEFPMWLMRK E VIEWSREFPI

HIKVII SJ QEGVSIGSRSQMG WXEFMPMX]� %PXLSYKL EX MXW WMQTPIWX PIZIP XLI GVIEXMSR SJ VSFYWX

JMRERGMEP WIGXSV LEW XLI TSXIRXMEP XS IRGSYVEKI WEZMRK EGXMZMX] F] GVIEXMRK GSRJMHIRGI MR XLI

JMRERGMEP WIGXSV� XLMW MW E RIGIWWEV] FYX RSX WYJJMGMIRX GSRHMXMSR JSV HIZIPSTQIRX� -RWXIEH XLI

QSFMPMWEXMSR SJ XLIWI WEZMRKW MRXS JMRERGMEPP] ZMEFPI MRZIWXQIRX EGXMZMX] MW IWWIRXMEP XS WIGYVI

JYXYVI KVS[XL � LIRGI TPEGMRK JYVXLIV IQTLEWMW YTSR XLI VSPI SJ E VSFYWX JMRERGMEP WIGXSV�

GETEFPI SJ QEOMRK GSQQIVGMEPP] WSYRH MRHITIRHIRX NYHKIQIRXW�

8LMW PEXXIV RSXMSR MW PIRX WYTTSVX F] E WXYH] VITSVXMRK I\XVIQIP] WXVSRK PMROEKIW FIX[IIR XLI

HIZIPSTQIRX SJ JMRERGMEP MRXIVQIHMEVMIW ERH FSXL VIEP +(4 KVS[XL �EW MRHMGEXIH MR XLI JSYVXL

VS[ SJ 8EFPI ���� ERH XIGLRMGEP TVSKVIWW��

� 8LMW WXYH] JMRHW PMQMXIH IZMHIRGI XS WYTTSVX XLI

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HIZIPSTIH 3)'( QIQFIV WXEXIW� MX MW YRGPIEV [LIXLIV XLI VIWYPXW IRXMVIP] TVIGPYHI XLI

TSWWMFMPMX] XLEX JMRERGMEP WIGXSV HIZIPSTQIRX IRGSYVEKIW MRGVIEWIH WEZMRKW ERH GETMXEP

EGGYQYPEXMSR�

-R EHHMXMSR XS QEGVSIGSRSQMG WXEFMPMX]� XLI HIZIPSTQIRX SJ IJJIGXMZI JMRERGMEP MRXIVQIHMEVMIW

WIIQW PMOIP] XS FI LMKLP] HITIRHIRX YTSR XLI PIKEP IRZMVSRQIRX� )RJSVGIQIRX SJ GVIHMXSVW

VMKLXW ERH GSRXVEGXW� ERH VIKYPEXMSR KSZIVRMRK ETTVSTVMEXI MRJSVQEXMSR HMWGPSWYVI EPP XIRH XS

FI GSVVIPEXIH [MXL XLI HIZIPSTQIRX SJ XLI JMRERGMEP WIGXSV ERH LIRGI IGSRSQMG KVS[XL��

�

8

+MZIR XLIWI VIPEXMSRW� KSZIVRQIRX LEW E OI] VSPI XS TPE] MR XIVQW SJ IRGSYVEKMRK MRZIWXQIRX

EGXMZMX]� ERH IRWYVMRK XLI GSRXMRYIH WXEFMPMX] SJ XLI JMRERGMEP W]WXIQ ERH XLI ETTVSTVMEXI

FILEZMSYV SJ EKIRXW [MXLMR MX� -R WYQ [I XLIVIJSVI EWWIVX XLEX XLI FSH] SJ IZMHIRGI WYKKIWXW

XLEX�

• +SZIVRQIRX WLSYPH IRKEKI MR PMQMXIH HMVIGX MRZIWXQIRX� SXLIV XLER TYFPMG MRJVEWXVYGXYVI�

IHYGEXMSR ERH LIEPXL�

• +SZIVRQIRX I\TIRHMXYVI WLSYPH FI EW PS[ EW TSWWMFPI [LMPWX EPPS[MRK JSV WYJJMGMIRX

TVSZMWMSR SJ [IPJEVI ERH TYFPMG WIVZMGIW XS IRWYVI WYTTSVX JSV XLI RIIHMIWX WIGXMSRW SJ

WSGMIX] ERH QMRMQMWI WSGMEP ERH TSPMXMGEP HMWVYTXMSR�

• 8LI IRJSVGIQIRX SJ GVIHMXSVW VMKLXW RIGIWWMXEXIW XLI HIZIPSTQIRX ERH MQTPIQIRXEXMSR SJ E

[IPP�HIJMRIH� XVERWTEVIRX FEROVYTXG] JVEQI[SVO� -X WLSYPH FI RSXIH LS[IZIV XLEX MX MW RSX

WYJJMGMIRX XS WMQTP] EHSTX PIKMWPEXMSR� FYX XLEX MX WLSYPH FI ORS[R XS EPP EKIRXW ERH IZIRP]

IRJSVGIH�

• (MVIGX KSZIVRQIRX MRXIVJIVIRGI MR XLI EGXMZMXMIW SJ XLI JMRERGMEP WIGXSV WLSYPH FI QMRMQMWIH�

MR SVHIV XS PMQMX XLI TSWWMFMPMX] SJ MRZIWXQIRX FIMRK YRHIVXEOIR JSV TSPMXMGEP I\TIHMIRG]

VEXLIV XLER SR GSQQIVGMEP KVSYRHW� 8LI KSZIVRQIRX WLSYPH JSGYW MXW EXXIRXMSR YTSR

IRWYVMRK QEGVSIGSRSQMG WXEFMPMX] MR SVHIV XS IREFPI XLI JMRERGMEP WIGXSV XS IRKEKI MR

PIRHMRK EGXMZMX] WYMXEFPI JSV MRZIWXQIRX TYVTSWIW� MR XIVQW SJ GSPPEXIVEP VIUYMVIQIRXW ERH

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F] IRJSVGMRK PMGIRWMRK ERH VIKYPEXMSR� VIWIVZI VIUYMVIQIRXW ERH HITSWMX MRWYVERGI WGLIQIW�

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EGGYQYPEXMSR ERH IJJMGMIRX EPPSGEXMSR SJ JMRERGMEP GETMXEP� ERH LIRGI XLI HIZIPSTQIRX SJ E

GETMXEP WXSGO WYMXEFPI XS IRWYVI WYWXEMREFPI IGSRSQMG HIZIPSTQIRX�

9

3. What Role Should the Government Play in the Production of Goods and Services?

3.1 Introduction

3RI GER GSRGIMZI SJ E PEVKI ZEVMIX] SJ VSPIW XLEX E KSZIVRQIRX GSYPH TPE] MR XLI TVSHYGXMSR SJ

KSSHW ERH WIVZMGIW MR HIZIPSTMRK IGSRSQMIW� *SYV FVSEH QSHIPW GER FI MHIRXMJMIH�

• WXEXI S[RIVWLMT ERH GIRXVEPMWIH HMVIGXMSR SJ TVSHYGXMSR ERH VIWSYVGIW � XLI l7SZMIXz QSHIP�

• WXEXI S[RIVWLMT ERH QEVOIX HMVIGXMSR SJ TVSHYGXMSR ERH VIWSYVGIW r XLI l,YRKEVMER QSHIPz

SV lXLMVH [E]z�

• TVMZEXI S[RIVWLMT ERH WXEXI HMVIGXMSR SJ TVSHYGXMSR ERH VIWSYVGIW r l-RHMGEXMZI 4PERRMRKz SR

*VIRGL SV .ETERIWI PMRIW�

• TVMZEXI S[RIVWLMT ERH QEVOIX HMVIGXMSR SJ TVSHYGXMSR ERH VIWSYVGIW�

-R XLMW WIGXMSR� [I HMWGYWW XLI VIPEXMZI WXVIRKXLW ERH [IEORIWWIW SJ XLI JSYV ETTVSEGLIW� FIJSVI

WYQQEVMWMRK XLI IZMHIRGI GSRGIVRMRK XLI MQTEGX SJ XLI JSYV ETTVSEGLIW JSV WYWXEMREFPI IGSRSQMG

KVS[XL ERH HIZIPSTQIRX� 8LI JYRHEQIRXEP VIWYPXW EVI ZIV] GPIEV� 7XEXI HMVIGXMSR ERH TPERRMRK

LEW VEVIP] WYGGIIHIH MR WXMQYPEXMRK IGSRSQMG HIZIPSTQIRX ERH KVS[XL MR XLI PSRK XIVQ� XLSYKL MX

LEW WSQIXMQIW FIIR ZIV] WYGGIWWJYP MR QSFMPMWMRK VIWSYVGIW MR XLI WLSVX XIVQ XS EHHVIWW WTIGMJMG

GVMWIW� I�K� [EV SV MR XLI IEVP] WXEKIW SJ MRHYWXVMEP HIZIPSTQIRX� 8LMW MW XVYI [LIR KSZIVRQIRX

HMVIGXMSR SJ VIWSYVGIW MW GSQFMRIH [MXL [MHIWTVIEH TYFPMG S[RIVWLMT SV [MXL TVMZEXI S[RIVWLMT�

8LIVI MW EPWS GPIEV IZMHIRGI XLEX WYWXEMREFPI PSRK�XIVQ IGSRSQMG HIZIPSTQIRX ERH KVS[XL MW

JSWXIVIH F] TVMZEXI VEXLIV XLER WXEXI S[RIVWLMT� 8LMW PIEZIW STIR XLI UYIWXMSR SJ [LEX XLI

KSZIVRQIRX WLSYPH HS MJ� JSV LMWXSVMGEP VIEWSRW� XLI TYFPMG WIGXSV WLEVI MW PEVKI� 8LI IZMHIRGI SR

XLI MQTEGX SJ TVMZEXMWEXMSR MW EPWS VIZMI[IH� ERH JSYRH MR KIRIVEP XS FI TSWMXMZI� MRGPYHMRK MR

HIZIPSTMRK IGSRSQMIW� ,S[IZIV� XLI HMWETTSMRXMRK I\TIVMIRGIW SJ XLI JSVQIV WSGMEPMWX GSYRXVMIW

SJ 'IRXVEP ERH )EWXIVR )YVSTI TVSZMHI E GPIEV [EVRMRK XLEX TVMZEXMWEXMSR EPSRI MW RSX IRSYKL� -X

MW EPWS MQTSVXERX XS IRWYVI XLEX TVMZEXI S[RIVW EVI KMZIR WXVEXIKMG IUYMX] LSPHMRKW� XLEX WIRWMFPI

QIXLSHW SJ TVMZEXMWEXMSR EVI YWIH ERH XLEX E GSQTIXMXMZI QEVOIX IRZMVSRQIRX MW GVIEXIH�

10

;I XLIVIJSVI GSRGPYHI XLEX XLI ETTVSTVMEXI VSPI JSV KSZIVRQIRX MW VEVIP] MJ IZIV MR XLI TVSHYGXMSR

SJ KSSHW ERH WIVZMGIW� ;LEX VSPI MW PIJX JSV XLI KSZIVRQIRX XS TPE] MR XLI IGSRSQ]# ;I LEZI

FIKYR XS WOIXGL XLI ERW[IV EFSZI� 8LI OI] IPIQIRX JVSQ XLI I\TIVMIRGI SJ IQIVKMRK QEVOIXW MW

MR GVIEXMRK ERH QEMRXEMRMRK E WXEFPI TSPMXMGEP ERH FYWMRIWW IRZMVSRQIRX� 8LMW MRZSPZIW IRWYVMRK

IUYMXEFPI VYPIW SJ XLI KEQI JSV FYWMRIWWIW ERH GMXM^IRW� MRGPYHMRK IRJSVGMRK ZSPYRXEV] GSRXVEGX�

KYEVERXIIMRK GSQTIXMXMSR ERH JMKLXMRK EKEMRWX GSVVYTXMSR� 8LI KSZIVRQIRX EPWS LEW ER MQTSVXERX

VSPI MR XLI TVSZMWMSR SJ TYFPMG KSSHW� ERH XLIVIJSVI MR XLI VIKYPEXMSR SJ lREXYVEPP]z QSRSTSPMWXMG

WIGXSVW WYGL EW IPIGXVMGMX] KIRIVEXMSR SV KEW WYTTP]� XS IRWYVI XLEX TVMGIW EVI VIKYPEXIH MR [E]W XLEX

IQYPEXI XLI JSVGIW SJ GSQTIXMXMSR�

3.2 Planning Versus Markets

3.2.1 The Merits and De-Merits of Planning

8LI 7SZMIX IGSRSQ]� ERH XLEX SJ MXW WEXIPPMXIW EJXIV ;SVPH ;EV --� [EW FYMPX SR GIRXVEP

TPERRMRK� 8LI OI] HVMZIVW SJ IGSRSQMG HIZIPSTQIRX r XLI WEZMRK VEXI� XLI EPPSGEXMSR SJ

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JVSQ XLI ����W� FIKER XS YRHIVQMRI XLI KVS[XL TIVJSVQERGI SJ XLI 7SZMIX�X]TI IGSRSQ]�

11

• -REFMPMX] XS TVSZMHI YREQFMKYSYW TVMSVMXMIW JSV KVS[XL� ;LIR ER IGSRSQ] MW PIWW

HIZIPSTIH� MRZIWXQIRX TVMSVMXMIW EVI WXVEMKLXJSV[EVH� ,S[IZIV� EW XLI IGSRSQ] FIGSQIW

QSVI WSTLMWXMGEXIH XLI RYQFIV SJ TSXIRXMEP MRZIWXQIRX TVSNIGXW QYPXMTPMIW ERH XLI

MRJSVQEXMSR VIUYMVIH XS VERO XLIQ FIGSQIW QSVI WYFXPI ERH GSQTPI\� 8LI TPERRMRK

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ERH REXMSREP TVMHI�

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XIGLRSPSKMIW� 8LI MRJSVQEXMSREP ERH MRGIRXMZIW JEMPYVIW RSXIH EFSZI ETTP] QSWX

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W]WXIQ� FIGEYWI MX WYKKIWX TPERRMRK GERRSX TVSZMHI XLI FEWMW JSV IGSRSQMG HIZIPSTQIRX MR

XLI GSQTIXMXMZI� VETMHP] GLERKMRK [SVPH IGSRSQ]�

3.2.2 The Merits and De-Merits of Markets

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XLI] [SVO [IPP� QEVOIXW EVI ER I\GIPPIRX [E] SJ TVSGIWWMRK MRJSVQEXMSR� [LMPI WMQYPXERISYWP]

TVSZMHMRK MRGIRXMZIW XS EGX YTSR MX� -R E GSQTIXMXMZI QEVOIX� MJ E KSSH MW MR WLSVX WYTTP]

VIPEXMZI XS HIQERH� IMXLIV HSQIWXMG SV KPSFEP� XLI TVMGI SJ XLEX KSSH [MPP VMWI MRHMGEXMRK XS

I\MWXMRK TVSHYGIVW XLEX XLIVI EVI TVSJMXW XS FI QEHI MJ XLI] WYTTP] QSVI� WMKREPPMRK XLEX

MRZIWXQIRXW MR XLMW TVSHYGX [MPP FI TVSJMXEFPI� ERH LMKLPMKLXMRK XS TSXIRXMEP IRXVERXW XLEX

GVIEXMRK FYWMRIWWIW MR XLMW WIGXSV GSYPH FI WYGGIWWJYP� 8LYW MR ;IWXIVR QEVOIX IGSRSQMIW� [I

JMRH MRRSZEXMSR SV WXVYGXYVEP HIQERH WOMPPW EWWSGMEXIH [MXL [EZIW SJ IRXV] ERH I\MX SJ JMVQW�

*SV XLI WEQI VIEWSRW� QEVOIXW IRGSYVEKI MRRSZEXMSR� FSXL MR TVSHYGXMSR XIGLRMUYI ERH MR

KSSHW XLIQWIPZIW� 4VSHYGIVW EVI GSRWXERXP] SR XLI PSSO�SYX JSV [E]W XS MRGVIEWI XLIMV TVSJMXW

F] WXIEPMRK E QEVOIX JVSQ XLIMV GSQTIXMXSVW� GVIEXMRK E WYGGIWWJYP RI[ TVSHYGX SV MRXVSHYGMRK

12

E GLIETIV TVSHYGXMSR TVSGIWW EVI SFZMSYW [E]W MR [LMGL XLMW GER FI HSRI� 8LI XLVMZMRK

QEVOIXW SJ 7SYXL )EWX %WME EVI TVMQI I\EQTPIW SJ LS[ XLSWI TVSGIWWIW STIVEXI�

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E VERKI SJ SXLIV TISTPI [MXL [LSQ XLI] GER HIEP� XLI] EVI RSX EX XLI QIVG] SJ ER E[O[EVH

QEREKIV SV VIGEPGMXVERX GPIVO� -J XLI] HS RSX PMOI XLI WIVZMGI SJJIVIH F] E TEVXMGYPEV WYTTPMIV�

XLI] GER KS XS ERSXLIV SJJIVMRK E FIXXIV UYEPMX] WIVZMGI� 8LI ZIV] TVSGIWW SJ W[MXGLMRK JVSQ

YRLIPTJYP XS LIPTJYP WYTTPMIVW [MPP IRGSYVEKI XLI WYVZMZEP SJ XLI PEXXIV EX XLI I\TIRWI SJ XLI

JSVQIV� 8LMW HMWTIVWMSR SJ IGSRSQMG TS[IV MW XLI IWWIRGI SJ QEVOIX GSQTIXMXMSR�

8LIVI EVI E PEVKI RYQFIV SJ WXYHMIW SR XLIWI MWWYIW� 8S WYQQEVMWI� XLI IZMHIRGI MRHMGEXIW XLEX�

• ,MKLIV QSRSTSP] TS[IV MW EWWSGMEXIH MR ;IWXIVR IGSRSQMIW [MXL PS[IV XIGLRMGEP IJJMGMIRG]

�WII 'EZIW ERH &EVXSR ��������

• 'SQTERMIW STIVEXMRK MR WIGXSVW [MXL JI[IV GSQTIXMXSVW ERH LMKLIV VIRXW LEZI PS[IV

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IGSRSQMIW �+IVSWOM ��������

• %RXM�XVYWX ERH GSQTIXMXMSR TSPMG] IRJSVGIQIRX MW TSWMXMZIP] EWWSGMEXIH [MXL PSRK VYR

KVS[XL� MR GVSWW GSYRXV] WXYHMIW �WII (YX^ ERH ,E]VM �������

8LYW XLI STIVEXMSR SJ XLI QEVOIX IGSRSQ] VIPMIW GVYGMEPP] SR XLI JSVGIW SJ GSQTIXMXMSR� XLIVI

QYWX FI E PEVKI RYQFIV SJ GYVVIRX ERH TSXIRXMEP WYTTPMIVW MR IEGL QEVOIX� -J XLIVI MW RSX�

WYTTPMIVW GER VEMWI I\TPSMX WLSVXEKIW XS VEMWI TVMGIW ERH TVSJMXW� VEXLIV XLER XS MRGVIEWI WYTTP]�

ERH XLI MRGIRXMZIW XS MRRSZEXI ERH MRXVSHYGI RI[ TVSHYGXW [MPP FI HYPPIH� ,IRGI XLI

KSZIVRQIRX RIIHW XS IRWYVI QEVOIXW VIQEMR GSQTIXMXMZI [MXL WXVMRKIRX TSPMGMIW XS FVIEO YT

PEVKI IRXIVTVMWIW� XS GSRWXVEMR QIVKIVW� XS TVIZIRX XLI JSVQEXMSR SJ GEVXIPW ERH XS IRWYVI JVII

QEVOIX IRXV]� -R IQIVKMRK QEVOIXW ERH IWTIGMEPP] MR XLI XVERWMXMSR IGSRSQMIW SJ 'IRXVEP

)YVSTI� JVII XVEHI LEW EPWS TPE]IH E GVYGMEP VSPI MR HMWGMTPMRMRK HSQIWXMG QSRSTSPMIW ERH

WXMQYPEXMRK VIWXVYGXYVMRK ERH MRRSZEXMSR�

13

3J GSYVWI QEVOIXW EPWS LEZI XLIMV JEMPYVIW� 1ER] QEVOIX EGXMZMXMIW MQTSWI GSWXW SR TISTPI

SXLIV XLER XLI MQQIHMEXI TEVXMGMTERXW r WTMPPSZIV IJJIGXW� 4SPPYXMSR MW ER SFZMSYW I\EQTPI� ERH

XLIVI QE] FI JEV QSVI IRZMVSRQIRXEP HEQEKI MR E QEVOIX IGSRSQ] XLER XLI WSGMIX] XEOIR

XSKIXLIV [SYPH HIWMVI FIGEYWI JMVQW MKRSVI XLI MQTEGX SJ XLIMV TSPPYXMSR SR XLI PSGEP

IRZMVSRQIRX� 8LMW MW TEVXMGYPEVP] XVYI MR IQIVKMRK QEVOIXW� [LIVI KSZIVRQIRXW QE] FI [IEO

SV YR[MPPMRK XS MQTSWI XLI GSWXW SJ IRZMVSRQIRXEP GSRXVSPW SR JMVQW� 'SRZIVWIP]� XLIVI EVI

EGXMZMXMIW XLEX GSRJIV FIRIJMXW SR RSR�TEVXMGMTERXW ERH XLIWI [MPP XIRH XS FI YRHIV�TVSZMHIH MR E

QEVOIX W]WXIQ� OI] EWTIGXW SJ TYFPMG LIEPXL WYGL EW MQQYRMWEXMSR JSV I\EQTPI� ;I WE[ EFSZI

XLEX LIEPXL JIIHW HMVIGXP] MRXS XLI KVS[XL TVSGIWW�

%R I\XVIQI SJ XLI PEXXIV TLIRSQIRSR EVI WS�GEPPIH lTYFPMG KSSHWz� PMOI HIJIRGI� PE[ ERH SVHIV

SV XLI IRJSVGIQIRX SJ ZSPYRXEV] GSRXVEGXW� 8LI TVMZEXI WIGXSV [MPP IMXLIV JEMP XS TVSZMHI XLIWI�

SV [MPP YRHIV�TVSZMHI XLIQ� ERH EW [I LEZI WIIR XLIMV EFWIRGI GER FVMRK MRXS UYIWXMSR XLI

WYGGIWW SJ XLI QEVOIX W]WXIQ MXWIPJ� 1SVISZIV� MR WIGXSVW [LIVI XIGLRSPSKMGEP JEGXSVW MQTP]

IGSRSQMIW SJ WGEPI� WS XLI MRHYWXV] GER SRP] WYTTSVX SRI SV E JI[ JMVQW r EW SGGYVW MR QSWX

YXMPMXMIW r XLI KSZIVRQIRX [MPP LEZI XS VIKYPEXI IRXIVTVMWIW XS IRWYVI XLEX GSRWYQIVW EVI RSX

I\TPSMXIH� 8LIVI MW MQTSVXERX PIWWSR LIVI� IZIR E JVII QEVOIX W]WXIQ VIUYMVIW WXVSRK� MJ

GEVIJYPP] HIPMRIEXIH� KSZIVRQIRX MRXIVZIRXMSR�

3.2.3 Is There a “Third Way”?

8LI GSQTEVEXMZI IZMHIRGI SR XLI TIVJSVQERGI SJ GIRXVEP TPERRMRK ZIVWYW JVII QEVOIXW MW

XLIVIJSVI EFWSPYXIP] GPIEV GYX� XLI VETMH HIZIPSTQIRX TVSGIWW EXXEMRIH MR XLI IEVP] ]IEVW SJ

GIRXVEP TPERRMRK [EW RSX WYWXEMREFPI� 8LI KVS[XL VEXIW SJ XLI QSVI EHZERGIH TPERRIH

IGSRSQMIW FIKER XS WPS[ JVSQ XLI ����W� 1SWX LEH WXSTTIH KVS[MRK EPXSKIXLIV F] XLI ����W�

8LI VIEWSRW GSRJSVQ [MXL SYV I\TIGXEXMSRW� -X FIGEQI MQTSWWMFPI XS TVMSVMXMWI WIGXSVW ERH

MRHYWXVMIW� WS XLI EPPSGEXMSR SJ MRZIWXQIRX FIGEQI LMKLP] MRIJJMGMIRX� 1EVKMREP VIXYVRW SR

MRZIWXQIRX TVSNIGXW JIPP XS EVSYRH ^IVS FIGEYWI XLI EPPSGEXMSR TVSGIHYVIW [IVI MREHIUYEXI�

1SVISZIV� XLI TPERRIH IGSRSQMIW [IVI YREFPI XS MRRSZEXI SV XS HMJJYWI XIGLRSPSKMGEP

EHZERGIW� QEOMRK XLIQ MRGVIEWMRKP] YRGSQTIXMXMZI MR XLI KPSFEP IGSRSQ]� 'IRXVEP TPERRMRK

LEW FIIR PEVKIP] EFERHSRIH EW E GSRWIUYIRGI� WMRGI XLI GSPPETWI SJ XLI GSQQYRMWX VIKMQIW

JVSQ XLI PEXI ����W�

14

3RI QMKLX PIKMXMQEXIP] EWO� LS[IZIV� [LIXLIV XLI TVSFPIQ [EW SRI SJ S[RIVWLMT� VEXLIV XLER

SJ TPERRMRK� 'ER SRI GSQFMRI WXEXI TPERRMRK SJ MRZIWXQIRX ERH VIZIRYI EPPSGEXMSR [MXL

TVMZEXI S[RIVWLMT� EW QER] LEZI EVKYIH [EW HSRI MR *VERGI ERH .ETER MR XLI ����W ERH

����W YRHIV XLI PEFIP r lMRHMGEXMZI TPERRMRKz� &SXL GSYRXVMIW KVI[ ZIV] VETMHP] MR XLMW TIVMSH�

%PP XLI IZMHIRGI WYKKIWXW XLEX MRHMGEXMZI TPERRMRK WYJJIVW JVSQ QER] SJ XLI WEQI TVSFPIQW XLEX

TIVXEMR MR GIRXVEP TPERRMRK r MRJSVQEXMSREP SZIVPSEH� TSSV EPPSGEXMSR HIGMWMSRW ERH WIZIVI

MRGIRXMZI HMJJMGYPXMIW� -RHMGEXMZI TPERRMRK QE] LEZI GSRXVMFYXIH XS WSQI[LEX EGGIPIVEXIH

KVS[XL MR *VERGI ERH .ETER MQQIHMEXIP] EJXIV XLI [EV� [LIR XLI MRZIWXQIRX TVMSVMXMIW [IVI

GPIEV�GYX� &YX XLI EYXLSVMXMIW VETMHP] HIGMHIH XS EFERHSR ER] WIVMSYW IJJSVXW XS HMVIGX

MRZIWXQIRXW EKEMRWX XLI JPS[ SJ XLI QEVOIX F] XLI ����W� FIGEYWI TVMZEXI WIGXSV MRZIWXQIRXW

[IVI GPIEVP] TVSZMRK QYGL QSVI IJJMGMIRX�

;I GER HIHYGI XLI JSPPS[MRK TSPMG] MQTPMGEXMSRW JVSQ XLMW EREP]WMW�

• 6IKMSREP ERH REXMSREP KSZIVRQIRXW WLSYPH RSX WIIO XS GSRXVSP IGSRSQMG KVS[XL SV

MRZIWXQIRX TVMSVMXMIW� IMXLIV HMVIGXP] XLVSYKL GIRXVEP TPERRMRK SV MRHMVIGXP] XLVSYKL

MRHMGEXMZI TPERRMRK�

• 8LMW HSIW RSX MQTP] GSQTPIXI VIPMERGI SR QEVOIX JSVGIW� +SZIVRQIRXW [MPP RIIH XS

MRXIVZIRI� JSV I\EQTPI�

• MR XLI TVSZMWMSR SJ TYFPMG LIEPXL ERH IHYGEXMSR�

• MR WIXXMRK IRZMVSRQIRXEP WXERHEVHW�

• MR TVSZMHMRK E PIKEP W]WXIQ ERH IRJSVGIQIRX SJ ZSPYRXEV] GSRXVEGXW XS WYTTSVX XLI

QEVOIX QIGLERMWQ�

• MR ERXM�QSRSTSP] ERH VIKYPEXMSR TSPMGMIW�

3.3. Private Versus State Ownership of Firms

3.3.1 The Comparative Performance of State Owned and Private Firms

;I [MPP WLS[ XLEX XLI IZMHIRGI MW SZIV[LIPQMRK XLEX TVMZEXIP] S[RIH JMVQW TIVJSVQ FIXXIV

XLER WXEXI S[RIH SRIW� ERH XLEX XLIVIJSVI XLI IGSRSQMG TIVJSVQERGI SJ GSYRXVMIW MR [LMGL

IRXIVTVMWI S[RIVWLMT MW FEWIH SR XLI TVMZEXI WIGXSV MW FIXXIV XLER XLIWI [LMGL VIP] SR WXEXI

15

S[RIVWLMT� %R MRXIVIWXMRK UYIWXMSR MW [LEX TSPMG] QSZIW XLMW MQTPMIW JSV GSYRXVMIW [MXL PEVKI

WXEXI S[RIH WIGXSVW�

8LIVI EVI X[S WIXW SJ TVSFPIQW [LMGL EVMWI JVSQ WXEXI S[RIVWLMT� 3RI MW XLEX XLI WXEXI EW

S[RIV QE] LEZI SFNIGXMZIW HMJJIVIRX XS XLEX SJ IJJMGMIRG]� TIVJSVQERGI ERH TVSJMXW� *SV

I\EQTPI� XLI KSZIVRQIRX QE] WIIO XS GVIEXI SV QEMRXEMR IQTPS]QIRX MR IGSRSQMGEPP]

HITVIWWIH VIKMSRW� SV MR TSPMXMGEPP] WIRWMXMZI EVIEW� -RZIWXQIRXW FEWIH SR WYGL TSPMXMGEP GVMXIVME

EVI PMOIP] XS FI YRWYGGIWWJYP ERH YRTVSJMXEFPI� 8LIVI EVI GEWIW JVSQ EPP SZIV XLI HIZIPSTIH EW

[IPP EW XLI PIWW HIZIPSTIH [SVPH SJ lTSPMXMGEP JEGXSVMIWz� STIRIH SV QEMRXEMRIH XS WEXMWJ]

TVIWWYVI KVSYTW SV PSGEP PSFFMIW ERH YREFPI XS WYVZMZI MR E GSQQIVGMEP IRZMVSRQIRX� 8LI

WMXYEXMSR MW RSX YWYEPP] WYWXEMREFPI� XLSYKL MX GER GSRXMRYI JSV E PSRK TIVMSH� HYVMRK [LMGL XLI

PSWWIW SJ XLI lTSPMXMGEP JEGXSV]z EVI GSZIVIH F] XE\ VIZIRYIW VEMWIH F] LSPHMRK FEGO TSXIRXMEPP]

QSVI WYGGIWWJYP EGXMZMXMIW� ERH XLIVIJSVI IGSRSQMG KVS[XL� -J XLI TVSTSVXMSR SJ PSWW�QEOMRK

GSQTERMIW SJ XLMW X]TI MR XLI IGSRSQ] FIGSQIW XSS PEVKI� EW [EW EVKYEFP] XLI GEWI MR

=YKSWPEZME MR XLI ����W� XLI IRXMVI KVS[XL TVSGIWW GER FI FVSYKLX XS E LEPX� 1SVISZIV� GPSWI

XMIW FIX[IIR XLI TSPMXMGEP TVSGIWW ERH IGSRSQMG HIGMWMSR QEOMRK GVIEXIW ER IRZMVSRQIRX

GSRHYGMZI XS FYVIEYGVEG] ERH GSVVYTXMSR� LMRHIVW XLI JVII STIVEXMSR SJ XLI QEVOIX ERH� EW [I

LEZI WIIR� GER XLIVIJSVI WPS[ IGSRSQMG KVS[XL�

7IGSRHP]� WXEXI S[RIVWLMT MW SJXIR EWWSGMEXIH [MXL XLI KVERXMRK SJ QSRSTSPMWXMG WXEXYW� SV

VIWXVMGXMSRW SR JVII IRXV] ERH I\MX� 8LMW GER WSQIXMQIW FI JSV IGSRSQMGEPP] ZEPMH VIEWSRW r XLI

JMVQ MR UYIWXMSR MW E REXYVEP QSRSTSP] r FYX QE] EPWS FI FIGEYWI XLIWI VIWXVMGXMSRW MRGVIEWI XLI

VIRXW KIRIVEXIH ERH EZEMPEFPI JSV HMWXVMFYXMSR EQSRK FYVIEYGVEXW ERH SJJMGMEPW� %W [I LEZI

WIIR� XLMW YRHIVQMRIW XLI H]REQMGW SJ XLI QEVOIX W]WXIQ� -X EPWS GER LEZI HIXVMQIRXEP IJJIGXW

XLVSYKLSYX XLI IGSRSQ] MJ MX PIEHW XS QMWTVMGMRK SJ OI] IGSRSQMG MRTYXW� I�K�

XIPIGSQQYRMGEXMSRW� IPIGXVMGMX]� [EXIV SV KEW�

8LI JYRHEQIRXEP EVKYQIRX EKEMRWX WXEXI S[RIVWLMT� LS[IZIV� MW FEWIH SR MRGIRXMZIW ERH XLI

IJJIGXMZIRIWW SJ GSVTSVEXI KSZIVRERGI� -R XLI IEVP] WXEKIW SJ XLI IRXIVTVMWI PMJI G]GPI�

GSQTERMIW EVI X]TMGEPP] S[RIH ERH VYR F] XLIMV IRXVITVIRIYVMEP JSYRHIV� %W GETMXEP RIIHW

KVS[� MRZSPZIQIRX SJ KVIEXIV GETMXEP JYRHW MW X]TMGEPP] EWWSGMEXIH [MXL XLI WITEVEXMSR SJ

S[RIVWLMT ERH GSRXVSP� XLI JMVQ FIGSQIW VYR F] TVSJIWWMSREP QEREKIVW [LS EVI RSX XLI

S[RIVW� ;I XLIR LEZI E GSRJPMGX SJ MRXIVIWXW ERH QEREKIVW LEZI JEV QSVI HIXEMPIH MRJSVQEXMSR

EFSYX XLI TSWWMFMPMXMIW ERH TVSWTIGXW JSV TVSJMX MR XLI GSQTER] XLER XLI S[RIVW r IMXLIV TVMZEXI

SV WXEXI� 8LI] [MPP X]TMGEPP] YWI XLMW ORS[PIHKI JSV XLIMV S[R EHZERXEKI� r XS VIHYGI XLIMV

16

IJJSVX� XS MRGVIEWI XLIMV VIQYRIVEXMSR� XS MRGVIEWI XLIMV WXERHMRK ERH TS[IV� ERH JSV I\EQTPI

F] MRGVIEWMRK XLI WM^I SJ XLI JMVQ r EPP EX XLI I\TIRWI SJ TVSJMXEFMPMX] ERH IJJMGMIRG]�

8LI GVYGMEP UYIWXMSR MW [LEX S[RIVW GER HS XS EPMKR XLI MRGIRXMZIW SJ QEREKIVW ERH S[RIVW�

ERH XS QSRMXSV XLI TIVJSVQERGI SJ XLI GSQTER]� 8LI GSRGITXYEP ERH IQTMVMGEP VIWIEVGL SJ

XLI TEWX �� ]IEVW GSRGPYHIW XLEX TVMZEXI S[RIVW EVI QSVI WYGGIWWJYP EX EGLMIZMRK XLMW XLER WXEXI

SRIW� 8S UYSXI 1IKKMRWSR ERH 2IXXIV� lXLI IZMHIRGI MW RS[ GSRGPYWMZI XLEX TVMZEXIP] S[RIH

JMVQW SYXTIVJSVQ WXEXI S[RIH IRXIVTVMWIWz� 8LI WYVZI] YTSR [LMGL XLIMV [SVO MW FEWIH

MRGPYHIW HIZIPSTIH IGSRSQMIW� QMHHPI MRGSQI GSYRXVMIW ERH HIZIPSTMRK GSYRXVMIW�

8LI VIEWSR JSV XLMW VIWYPX MW GPIEV� % TVMZEXI S[RIVWLMT W]WXIQ TPEGIW PMQMXW SR XLI

HMWGVIXMSREV] FILEZMSYV SJ QEREKIVW r FSXL I\XIVREP GSRWXVEMRXW MQTSWIH F] GSQTIXMXMZI

TVSHYGX ERH GETMXEP QEVOIXW ERH MRXIVREP GSRWXVEMRXW MQTSWIH F] GSVTSVEXI KSZIVRERGI�

QSRMXSVMRK� EGGSYRXMRK WXERHEVHW ERH HMVIGX KSZIVRERGI QIGLERMWQW F] XLI S[RIVW

XLIQWIPZIW� -R GSYRXVMIW WYGL EW XLI 9/� GSRWXVEMRXW SR QEREKIVMEP HMWGVIXMSR EVI PEVKIP]

I\XIVREP XS XLI JMVQ ERH HIVMZI JVSQ GETMXEP QEVOIXW� 8LI UYEPMX] SJ QEREKIVMEP HIGMWMSR�

QEOMRK ERH XLI I\XIRX SJ QEREKIVMEP HMWGVIXMSR EVI ER MRTYX MR XLI GLSMGIW SJ XVEHIVW MR WXSGO

ERH IUYMX] QEVOIXW� [LSWI NYHKIQIRX SR GSQTER] TIVJSVQERGI MW WYQQEVMWIH MR XLI WLEVI

TVMGI� -J XLI QEREKIVMEP XIEQ MW XLSYKLX XS FI MRGSQTIXIRX SV MRIJJMGMIRX� XLI WLEVI TVMGI [MPP

FI VIHYGIH� TYXXMRK TVIWWYVI SR QEREKIVW XS MQTVSZI XLIMV TIVJSVQERGI� 8LIWI TVIWWYVIW MR

TEVX STIVEXI ZME QEREKIVMEP MRGIRXMZIW JVSQ WLEVILSPHMRKW ERH FSRYW TE]QIRXW� 8LI] EPWS

GSQI JVSQ XLI [E] XLEX XLI QEREKIVMEP QEVOIX STIVEXIW� [MXL QEREKIVMEP TIVJSVQERGI TE]

ERH NSF TVSWTIGXW EWWIWWIH F] QSZIQIRXW MR WLEVI TVMGIW� % TIVWMWXIRXP] TSSV WLS[MRK QE]

EPWS KIRIVEXI I\XIVREP TVIWWYVI� IRGSYVEKMRK ER EPXIVREXMZI QEREKIVMEP XIEQ XS QSYRX E XEOI�

SZIV FMH�

-R GSYRXVMIW WYGL EW .ETER SV +IVQER] LS[IZIV� XLIVI MW KVIEXIV VIPMERGI SR MRXIVREP

GSRWXVEMRXW� 3[RIVWLMT MW X]TMGEPP] LMKLP] GSRGIRXVEXIH MRXS XLI LERHW SJ FEROW� JYRHW SV

JEQMPMIW [LS EVI KVERXIH HMVIGX FSEVH VITVIWIRXEXMSR ERH YRHIVXEOI GPSWI QSRMXSVMRK SJ

IRXIVTVMWI TIVJSVQERGI HMVIGXP]� &SXL W]WXIQW VIP] LIEZMP] SR WXEXYXSV] VIUYMVIQIRXW JSV

MRJSVQEXMSR TVSZMHIH F] XLI JMVQ� I\XIVREP EYHMXMRK ERH EGGSYRXERG] WXERHEVHW�

-X MW ZIV] LEVH JSV XLI WXEXI EW S[RIV XS VITPMGEXI XLIWI TVIWWYVIW� %QFMKYMX] MR XLI SFNIGXMZIW

SJ XLI WXEXI EW S[RIV GER PIEH XS XLI WIXXMRK SJ MRGSRWMWXIRX XEVKIXW JSV QEREKIVW [LMGL� MR XLI

GSRXI\X SJ MREHIUYEXI TIVJSVQERGI QSRMXSVMRK ERH KSZIVRERGI WXVYGXYVIW� MRGVIEWIW

QEREKIVMEP HMWGVIXMSR� 7XEXI S[RIH JMVQW EVI RSX WYFNIGX XS TVMZEXI GETMXEP QEVOIX HMWGMTPMRIW�

17

ERH RIMXLIV XLI GSQTIXMXMZIP] HVMZIR MRJSVQEXMSREP WXVYGXYVI RSV XLI WIPJ�IUYMPMFVEXMRK

KSZIVRERGI QIGLERMWQW GER FI WYFWXMXYXIH JSV MR JYPP� 1SVISZIV XLI EYXLSVMXMIW VEVIP] LEZI

XLI VIWSYVGIW SV TISTPI [MXL XLI WOMPPW RIGIWWEV] XS VIP] SR MRXIVREP GSRWXVEMRXW SR QEREKIVMEP

HMWGVIXMSR� 8LYW JSV I\EQTPI KSZIVRQIRXW EVI VEVIP] HMVIGXP] VITVIWIRXIH SR XLI FSEVHW SJ

WXEXI S[RIH IRXIVTVMWIW� ERH VEVIP] WYFNIGX XS XLI EYHMXMRK ERH MRJSVQEXMSR VIUYMVIQIRXW SJ

TVMZEXI WIGXSV JMVQW�

3.3.2. Privatisation

8LMW WYKKIWXW XLEX TVMZEXMWEXMSR SJ WXEXI S[RIH JMVQW [MPP MQTVSZI XLIMV TIVJSVQERGI� ERH ]MIPH

PSRK PEWXMRK FIRIJMXW XS XLI HIZIPSTQIRX TVSGIWW� -R KIRIVEP� XLI IQTMVMGEP IZMHIRGI WXVSRKP]

WYTTSVXW XLMW ZMI[� 8S UYSXI 1IKKMRWSR ERH 2IXXIV EKEMR� lIQTMVMGEP IZMHIRGI GPIEVP] WLS[W

XLEX TVMZEXMWEXMSR WMKRMJMGERXP] �SJXIR HVEQEXMGEPP]� MQTVSZIW XLI STIVEXMRK ERH JMRERGMEP

TIVJSVQERGI SJ HMZIWXIH JMVQWz� 8LI EVKYQIRX MW GSRJMVQIH F] XLI EWWIWWQIRX SJ MRZIWXQIRX

FEROIVW XLEX TVMZEXMWEXMSRW lWYGGIWW LEW FIIR MRHMWTYXEFPIz �1SVWI �������� %R MQTSVXERX

WXYH] F] &SYLEOVM ERH 'SWWIX JSV �� HIZIPSTMRK GSYRXVMIW JMRHW XLEX SR EZIVEKI XLI JMVQW MR

XLIMV WEQTPI lWLS[ WMKRMJMGERX MRGVIEWIW MR TVSJMXEFMPMX]� STIVEXMRK IJJMGMIRG]� GETMXEP

MRZIWXQIRX WTIRHMRK� SYXTYX| ERH IQTPS]QIRX ERH E HIGPMRI MR PIZIVEKI ERH ER MRGVIEWI MR

HMZMHIRHW�z 8S GSRGPYHI [MXL XLI STMRMSR SJ .SLR 2IPPMW SJ XLI ;SVPH &ERO� l8LI JEGX MW XLEX

EPQSWX IZIV] VMKSVSYW WXYH] GSQTER] TVI� ERH TSWX� TVMZEXM^EXMSR STIVEXMSR MRHMGEXIW� SR

EZIVEKI� WM^IEFPI TIVJSVQERGI MQTVSZIQIRXz �2IPPMW ��������

8LMW WIIQW XS WYKKIWX XLEX KSZIVRQIRXW XLEX EVI LIEZMP] MRZSPZIH MR XLI TVSHYGXMSR SJ KSSHW

ERH WIVZMGIW WLSYPH HMZIWX XLIQWIPZIW SJ XLIWI EWWIXW EW VETMHP] EW TSWWMFP]� 8LMW PIWWSR LEW

FIIR PIEVRX EPP SZIV XLI [SVPH� QSVI XLER ��� GSYRXVMIW SR IZIV] GSRXMRIRX LEZI TVMZEXMWIH EX

PIEWX WSQI XLIMV WXEXI S[RIH JMVQW� EGVSWW XLI VERKI SJ WIGXSVW� %R IWXMQEXIH ������ QIHMYQ

ERH PEVKI WM^IH JMVQW LEZI FIIR TVMZEXMWIH� EW [IPP EW LYRHVIHW SJ XLSYWERHW SJ WQEPPIV

FYWMRIWWIW� 8LI XSXEP TVSGIIHW LEZI FIIR IWXMQEXIH EX ���� FMPPMSR �4VMZEXMWEXMSR

-RXIVREXMSREP� 2S ���� (IGIQFIV ������ 1SVISZIV� EW 2IPPMW ������ TSMRXW SYX� MX MW E XIPPMRK

MRHMGEXSV SJ WYGGIWW XLEX XLMW TVSGIWW LEW VEVIP] FIIR VIZIVWIH r SRP] E LERHJYP SJ TVMZEXMWIH

GSQTERMIW LEW WS JEV FIIR VIREXMSREPMWIH�

,S[IZIV� XLI FYPO SJ TVMZEXMWEXMSR LEW XEOIR TPEGI MR GSYRXVMIW [LIVI XLI TVSTSVXMSR SJ SYXTYX

TVSHYGIH F] XLI WXEXI WIGXSV MW VIPEXMZIP] QSHIWX� ,IRGI XLI XVEHMXMSRW ERH MRWXMXYXMSRW SJ E

JVII QEVOIX IGSRSQ] EVI [IPP IWXEFPMWLIH� 3TIRMRK WXEXI S[RIH JMVQW XS XLI VMKSYVW SJ

GSQTIXMXMSR MW E TEVXMGYPEVP] MQTSVXERX EWTIGX SJ TVMZEXMWEXMSR� ERH SRI [LMGL MW GVYGMEP XS MXW

IRLERGIQIRX SJ GSVTSVEXI TIVJSVQERGI� 8S UYSXI JVSQ XLI GSRGPYWMSRW SJ E WYVZI] F]

18

8ERHSR ������ l8LIVI EVI QER] GEWIW [LIVI TVMZEXM^EXMSR LEW RSX PIH XS IJJMGMIRG]

MQTVSZIQIRXW� XLIWI EVI KIRIVEPP] EWWSGMEXIH [MXL WMXYEXMSRW [LIVI XLI HIKVII SJ GSQTIXMXMSR

LEW VIQEMRIH YRGLERKIH FIJSVI ERH EJXIV TVMZEXMWEXMSR|MX MW XLI PIZIP SJ GSQTIXMXMSR� RSX

S[RIVWLMT r XLEX FIWX HIXIVQMRIW IJJMGMIRG] SYXGSQIW�

8LI TVSFPIQ SJ MRETTVSTVMEXI MRWXMXYXMSRW ERH QEVOIX WXVYGXYVIW LEW FIIR TEVXMGYPEVP] WIVMSYW

MR XLI IGSRSQMIW SJ 'IRXVEP ERH )EWXIVR )YVSTI� [LIVI ZMVXYEPP] XLI IRXMVI MRHYWXVMEP WIGXSV

[EW WXEXI S[RIH TVMSV XS VIJSVQW MR XLI IEVP] ����W� [LIVI MRHYWXVMEP GSRGIRXVEXMSR LEW

XVEHMXMSREPP] FIIR LMKL FIGEYWI SJ XLI TPERRIVW RIIH XS HIEP [MXL VIPEXMZIP] JI[ TVSHYGXMSR

YRMXW� ERH [LIVI XLI WSGMEPMWX W]WXIQ [EW PEVKIP] MRWYPEXIH JVSQ XLI GSQTIXMXMSR SJ

MRXIVREXMSREP XVEHI�

• )ZIR MR 'IRXVEP )YVSTI� LS[IZIV� TVMZEXMWEXMSR LEW ]MIPHIH WYGGIWW MR WSQI GSYRXVMIW�

)ZMHIRGI MW EGGYQYPEXMRK JVSQ ,YRKEV]� 4SPERH� XLI '^IGL 6ITYFPMG ERH 7PSZIRME XLEX

TVMZEXMWEXMSR MW EWWSGMEXIH [MXL MQTVSZIH TVSHYGXMZMX]� XIGLRMGEP IJJMGMIRG] ERH JMRERGMEP

TIVJSVQERGI �WII I�K� *V]HQER IX EP� ������� 4SLP IX EP �������� ,S[IZIV� MX MW MQTSVXERX

XS WXVIWW XLEX XLIWI WYGGIWWIW EVI GVYGMEPP] EWWSGMEXIH [MXL JMZI SXLIV GLERKIW MR XLI

IGSRSQMG IRZMVSRQIRX� REQIP]�

• LEVHIRIH FYHKIX GSRWXVEMRXW� E VIHYGXMSR MR HMVIGX ERH MRHMVIGX WXEXI WYFWMH] SJ JMVQW

�WII I�K� 'EVPMR� *VMIW� 7GLEJJIV ERH 7IEFVMKLX �������

• MRGVIEWIH HSQIWXMG GSQTIXMXMSR� EW MRHMGEXIH F] PS[IV PIZIP SJ QEVOIX GSRGIRXVEXMSR

�WII )EVPI ERH )WXVMR ������� 'EVPMR� *VMIW� 7GLEJJIV ERH 7IEFVMKLX ������� &VS[R ERH

)EVPI �������

• MRGVIEWIH MRXIVREXMSREP GSQTIXMXMSR� PIEHMRK XS KVIEXIV MQTSVX TIRIXVEXMSR �WII 7QMXL

��������

• MRGVIEWIH JSVIMKR HMVIGX MRZIWXQIRX �WII I�K� &IZER ERH )WXVMR ��������

• VIPEXMZIP] WSTLMWXMGEXIH PIKEP ERH MRWXMXYXMSREP WXVYGXYVIW XS WYTTSVX XLI STIVEXMSR SJ XLI

QEVOIX IGSRSQ] �WII )&6(� 8VERWMXMSR 6ITSVX ��������

-X MW GPIEV XLEX TVMZEXMWEXMSR LEW JEMPIH [LIR RSX EGGSQTERMIH F] XLIWI HIZIPSTQIRXW�

8LI KEMRW JVSQ TVMZEXMWEXMSR MR 'IRXVEP ERH )EWXIVR )YVSTI LEZI WS JEV RSX FIIR QEXGLIH F]

TVSKVIWW MR 6YWWME ERH XLI JSVQIV 7SZMIX 9RMSR� -X MW MQTSVXERX JSV GSYRXVMIW [MXL PEVKI WXEXI

WIGXSVW PMOI 'LMRE XS YRHIVWXERH XLI VIEWSRW [L] 6YWWMER TVMZEXMWEXMSR [EW WS YRWYGGIWWJYP�

ERH XS PIEVR XLI PIWWSRW JVSQ 6YWWMER JEMPYVIW� 8LI FS\ FVMIJP] WYQQEVMWIW XLI 6YWWMER

19

TVMZEXMWEXMSR I\TIVMIRGI� 'LMRE LEW VIPMIH JSV LMKL ERH WYWXEMRIH KVS[XL SR XLI JSVGIW SJ

QEVOIX GSQTIXMXMSR ERH JVII XVEHI [MXLSYX WMKRMJMGERX TVMZEXMWEXMSR� 8LI EFSZI WYKKIWXW XLEX

XLMW QE] RSX FI WYWXEMREFPI MR XLI PSRK VYR� EX E QMRMQYQ XLI MRIJJMGMIRGMIW SJ XLI WXEXI S[RIH

WIGXSV� ERH XLI XE\IW MQTSWIH XS YRHIV[VMXI XLIQ� QE] VIWXVEMR XLI KVS[XL TSXIRXMEP SJ XLI

JEWXIV KVS[MRK TVMZEXI WIGXSV� 8LI FS\ WYKKIWXW XLEX XLI JEMPYVIW SJ 6YWWMER TVMZEXMWEXMSR HS

RSX GSRWXMXYXI ER EVKYQIRX EKEMRWX XLI FIRIJMXW SJ TVMZEXMWEXMSR MR ER IGSRSQ] [MXL E PEVKI

WXEXI S[RIH WIGXSV� XLI TVSFPIQW EVSWI JVSQ XLI QIXLSHW SJ TVMZEXMWEXMSR ERH JVSQ XLI

EZSMHEFPI [IEORIWWIW SJ XLI QEVOIX� PIKEP ERH MRWXMXYXMSREP IRZMVSRQIRX�

8LI TSPMG] MQTPMGEXMSRW SJ XLMW EREP]WMW EVI�

• MRRSZEXMSR ERH KVS[XL WLSYPH FI GSRGIRXVEXIH MR TVMZEXI WIGXSV JMVQW� [LIVI MRGIRXMZIW EVI

WLEVTIV�

• TVMZEXMWEXMSR GER TPE] E GIRXVEP VSPI MR IGSRSQMG KVS[XL�

• MX MW MQTSVXERX XLEX JMVQW EVI TVMZEXMWIH XS lVIEPz WXVEXIKMG S[RIVW�

• TVMZEXMWEXMSR [MPP SRP] MQTVSZI GSQTER] TIVJSVQERGI MJ EWWSGMEXIH [MXL XLI IPMQMREXMSR SJ

WYFWMHMIW ERH IJJIGXMZI HSQIWXMG ERH MRXIVREXMSREP GSQTIXMXMSR�

4. Entrepreneurship

3RI SJ XLI QSWX WMKRMJMGERX HIZIPSTQIRXW MR IGSRSQMG TSPMG] VIWIEVGL SJ XLI TEWX HIGEHI LEW

FIIR XLI EREP]WMW SJ XLI GVYGMEP VSPI SJ IRXVITVIRIYVMEP EGXMZMX] MR IGSRSQMG KVS[XL� %R

MQTSVXERX GVSWW�GSYRXV] WXYH] F] 6I]RSPHW� ,E] ERH 'EQT ������ FEWIH SR HIZIPSTIH

IGSRSQMIW IWXEFPMWLIW E TSWMXMZI GSVVIPEXMSR FIX[IIR PIZIPW SJ IRXVITVIRIYVMEP EGXMZMX]�

QIEWYVIH F] XLI EZIVEKI FYWMRIWW WXEVX YT VEXI ERH XLI VEXI SJ +(4 KVS[XL� 8LIVI MW EPWS E

TSWMXMZI GSVVIPEXMSR FIX[IIR XLI PIZIP SJ IRXVITVIRIYVMEP EGXMZMX] ERH XLI VEXI SJ KVS[XL SJ

IQTPS]QIRX� IRXVITVIRIYVMEP JMVQW EVI MRGVIEWMRKP] ZMI[IH EW XLI OI] QSXSV SJ IQTPS]QIRX

GVIEXMSR�

8LMW MWWYI MW GPIEVP] SJ WMKRMJMGERGI JSV IQIVKMRK EW [IPP EW HIZIPSTMRK QEVOIXW� 3RI SJ XLI

QSWX MQTSVXERX JMRHMRKW SJ IRXIVTVMWI PIZIP WXYHMIW MR 'IRXVEP ERH )EWXIVR )YVSTI MW XLEX [LMPI

TVMZEXMWIH JMVQW YWYEPP] TIVJSVQ WMKRMJMGERXP] FIXXIV XLER WXEXI S[RIH SRIW� XLI TIVJSVQERGI SJ

FSXL MW IGPMTWIH F] [LEX MW SGGYVVMRK MR XLI HI RSZS WIGXSV� %REP]WXW VIKEVH HI RSZS KVS[XL EW

XLI TVMQEV] HIXIVQMRERX SJ WYGGIWWJYP IGSRSQMG TIVJSVQERGI MR 4SPERH� ERH� GSRZIVWIP]� XLI

20

VIPEXMZI JEMPYVI SJ IRXVITVIRIYVMEP EGXMZMX] MR XLI JSVQIV 7SZMIX 9RMSR EW E JYVXLIV MQTSVXERX

VIEWSRW JSV XLI WYWXEMRIH IGSRSQMG HMJJMGYPXMIW MR XLEX VIKMSR�

8LI 6I]RSPHW IX EP WXYH] SYXPMRIW WM\ JEGXSVW [LMGL I\TPEMR HMJJIVIRGIW MR IRXVITVIRIYVMEP

EGXMZMX] EGVSWW GSYRXVMIW�

• )RXVITVIRIYVMEP STTSVXYRMX] r XLI STTSVXYRMXMIW STIRIH YT F] IGSRSQMG KVS[XL ERH XLI

IZSPYXMSR SJ XLI IGSRSQMG WXVYGXYVI�

• )RXVITVIRIYVMEP GETEGMX] r XLMW GEYWIW XLI EFMPMX] SJ MRHMZMHYEPW XS VIEGX XS XLIWI

STTSVXYRMXMIW� 8LMW MRZSPZIW FSXL XLI GETEGMX] SJ MRHMZMHYEPW ERH XLIMV QSXMZEXMSR� %PWS

VIPIZERX MW XLI PIKEP� MRWXMXYXMSREP ERH GYPXYVEP GSRWXVEMRXW XS IRXVITVIRIYVWLMT� MRGPYHMRK

GSVVYTXMSR� FYVIEYGVEXMG MRIJJMGMIRG] ERH VIWX WIIOMRK�

• -RJVEWXVYGXYVI r HIJMRIH FVSEHP] XS MRGPYHI XLI EZEMPEFMPMX] SJ JMRERGMRK� PERH� JEGMPMXMIW�

IQTPS]IIW� WYTTPMIW� KSZIVRQIRX EWWMWXERGI� YXMPMX] GSWX� XVERWTSVXEXMSR ERH XE\

GSRGIWWMSRW� /I] MWWYIW EVI XLI EZEMPEFMPMX] SJ IUYMX] JMRERGI� XLI EZEMPEFMPMX] ERH GSWX SJ

TVSJIWWMSREP WIVZMGIW ERH EGGIWW XS RI[ XIGLRSPSKMIW� -RXIVIWXMRKP]� XLI WGEPI SJ

IRXVITVIRIYVWLMT HSIW RSX ETTIEV XS FI VIPEXIH XS HMVIGX KSZIVRQIRX TSPMGMIW SV

TVSGYVIQIRX SVMIRXEXMSR�

• (IQSKVETL] r QSWX IRXVITVIRIYVW EVI ]SYRK� EKIH FIX[IIR �� ERH ��� )RXVITVIRIYVMEP

STTSVXYRMXMIW EVI KVIEXP] IRLERGIH MR GSYRXVMIW [MXL JEWX KVS[MRK TSTYPEXMSR� 8LIWI

JEGXSVW WYKKIWX XLEX IRXVITVIRIYVWLMT WLSYPH FI ZIV] LMKL MR QYGL SJ 7SYXL )EWX %WME�

MRGPYHMRK 'LMRE� 'SYRXVMIW [MXL LMKLIV PIZIPW SJ IRXVITVIRIYVMEP EGXMZMX] LEZI E LMKLIV

TVSTSVXMSR SJ [SQIR IRXVITVIRIYVW� ERH SJ SPHIV IRXVITVIRIYVW�

• )HYGEXMSR r XLIVI MW RS VIPEXMSRWLMT FIX[IIR IRXVITVIRIYVMEP EGXMZMXMIW ERH XLI TVSTSVXMSR

SJ XLI TSTYPEXMSR IRVSPPIH MR TVMQEV] SV WIGSRHEV] IHYGEXMSR� ,S[IZIV� XLIVI MW E WXVSRK

GSVVIPEXMSR [MXL XIVXMEV] PIZIP SJ IHYGEXMSR� 8LYW KVEHYEXIW EVI QSVI LIEZMP] IRKEKIH MR

WXEVXMRK RI[ JMVQW� EX PIEWX MR ;IWXIVR GSYRXVMIW� TVIWYQEFP] FIGEYWI XLI IHYGEXMSR

TVSZMHIW XLIQ [MXL XLI WOMPPW ERH XLI QMRHWIX JSV WYGL EGXMZMXMIW�

• 'YPXYVI r WIZIVEP EXXMXYHIW ETTIEV XS FI MQTSVXERX MRGPYHMRK�

• -RHITIRHIRGI ERH EYXSRSQ] MR XLI [SVO TPEGI

• 8LI VIWTIGX E[EVHIH XS IRXVITVIRIYVW [MXLMR XLI GYPXYVI

• ;MPPMRKRIWW SJ WSGMIX] XS EGGITX MRGSQI HMJJIVIRGIW FIX[IIR MRHMZMHYEPW�

21

8LMW PIEHW XS E RYQFIV SJ TSPMG] GSRGPYWMSRW JSV GSYRXVMIW [LMGL [MWL XS IRGSYVEKI KVS[XL

XLVSYKL IRXVITVIRIYVWLMT� 8LIWI EVI�

• +SZIVRQIRXW MR IQIVKMRK QEVOIXW ZMI[ TVSQSXMRK IRXVITVIRIYVWLMT EW ER MRXIKVEP TEVX SJ

XLIMV IGSRSQMG TSPMG]�

• 4VSKVEQQIW RIIH XS FI XEVKIXIH WTIGMJMGEPP] EX XLI IRXVITVIRIYVMEP WIGXSV�

• 4VSKVEQQIW XS VEMWI IRXVITVIRIYVMEP EGXMZMX] RIIH XS JSGYW SR XLI PS[IV IRXVITVIRIYVMEP

VEXI KVSYTW r SPHIV TISTPI ERH [SQIR�

• 0SRK�XIVQ WYWXEMRIH MRGVIEWIW MR IRXVITVIRIYVMEP EGXMZMX] VIUYMVIW TSPMG] GSQQMXQIRX XS

XIVXMEV] IHYGEXMSR�

• (IZIPSTMRK IRXVITVIRIYVMEP WOMPPW WLSYPH FI MRXIKVEXIH MRXS IHYGEXMSR ERH ZSGEXMSREP

TVSKVEQQIW�

• +SZIVRQIRX PIEHIVW WLSYPH EGX XS TVSQSXI E WYTTSVXMZI GYPXYVI JSV IRXVITVIRIYVWLMT�

5. Policy Implications for Government

7YGGIWWJYP IQIVKMRK QEVOIXW LEZI XIRHIH XS LEZI VIPEXMZIP] PS[ I\TIRHMXYVIW F] KSZIVRQIRX

SR [IPJEVI FIRIJMXW ERH WSGMEP MRWYVERGI� 6MWO LEW PEVKIP] FIIR HIEPX [MXL EX XLI PIZIP SJ XLI

LSYWILSPH SV MRHMZMHYEP� IZIR MR XLI TVIWIRGI SJ PEVKI GETMXEP QEVOIX MQTIVJIGXMSRW� -J

ER]XLMRK� LS[IZIV� EGGIPIVEXIH VIJSVQW ERH KVIEXIV MRXIKVEXMSR MRXS XLI [SVPH IGSRSQ] WIVZI

XS MRXVSHYGI JYVXLIV VMWOW� LIRGI WYKKIWXMRK ER MRGVIEWIH RIIH JSV WSGMEP TVSXIGXMSR�

(IWTMXI XLMW� MX LEW FIIR [MHIP] ERH MRJPYIRXMEPP] EVKYIH XLEX JSV IGSRSQMIW XS IQIVKI XLI]

QYWX EZSMH XLI 3)'( TVSFPIQ SJ PEVKI WGEPI FIRIJMXW TVSKVEQQIW XLEX LEZI YRHIWMVEFPI

MRGIRXMZI TVSTIVXMIW ERH XLEX EVI JMWGEPP] GSWXP]� 3ZIV�KIRIVSYW WSGMEP TVSKVEQQIW LEZI LEH

EHZIVWI IJJIGXW SR PEFSYV WYTTP] ERH SR XLI FYHKIX� YPXMQEXIP] PIEHMRK XS XLI RIIH JSV QENSV

JMWGEP EHNYWXQIRX� &] GSRXVEWX � EW XLI VIGIRX 7SYXL )EWX %WME GVMWMW LEW WS ZMZMHP] WLS[R �

W]WXIQW XLEX LEZI WLMJXIH QSWX VMWO TVSZMWMSR XS LSYWILSPHW LEZI KVIEX HMJJMGYPX] MR GSTMRK [MXL

PEVKI WLSGOW ERH� QSVI FVSEHP]� MR QEMRXEMRMRK KVIEXIV TSPMXMGEP ERH WSGMEP GSLIWMSR� -R XLI

XVERWMXMSR IGSRSQMIW� GSYRXVMIW XLEX LEZI HSRI PMXXPI XS TVSZMHI JEPP�FEGOW JSV XLSWI RIKEXMZIP]

22

EJJIGXIH F] VIJSVQW � WYGL EW NSF PSWIVW � LEZI IRHIH YT [MXL VIJSVQW FIMRK WXEPPIH SV

MRGSQTPIXI�

-R WLSVX� MX MW YRPMOIP] XLEX XSHE]W IQIVKMRK QEVOIXW GER EZSMH GLERKIW MR XLI FEPERGI FIX[IIR

TVMZEXI ERH TYFPMG VMWO QMXMKEXMSR� 2SRIXLIPIWW� XS EZSMH XLI TMXJEPPW SJ E RYQFIV SJ QEXYVI

IGSRSQMIW� PIWWSRW GER RS[ FI PIEVRX EFSYX LS[ FIWX XS WXVYGXYVI XLSWI GLERKIW� *SVIQSWX

EQSRK XLIWI PIWWSRW MW XLI RIIH JSV XEVKIXMRK SJ VMWO�QMXMKEXMSR TVSKVEQQIW� EPSRKWMHI GEVIJYP

UYEPMJMGEXMSR SJ FSXL XLI HYVEXMSR ERH GSRHMXMSRW YRHIV [LMGL TYFPMGP] JMRERGIH MRGSQI

WYTTSVX GER FI VIGIMZIH� 8SQSVVS[W QEXYVI IGSRSQMIW GERRSX WL] E[E] JVSQ XLMROMRK EFSYX

LS[ TYFPMG ERH TVMZEXI EKIRXW GER WLEVI ERH JMRERGI XLI QMXMKEXMSR SJ VMWOW�

-RHIIH [I [SYPH EGORS[PIHKI XLEX QER] SJ XLI TSPMG] MRMXMEXMZIW XLEX [I LEZI TVSTSWIH MR

XLMW TETIV QE] MRHYGI LEVH GLSMGIW JSV KSZIVRQIRX MR XIVQW SJ WSGMEP TVSXIGXMSR ERH XLI

QEMRXIRERGI SJ WYTTSVX JSV XLI VIJSVQ TVSKVEQQI� 2SRIXLIPIWW� [I FIPMIZI XLEX TSPMG]

HIZIPSTQIRXW MR XLI JMZI OI] EVIEW XLEX [I LEZI SYXPMRIH [MPP WXMQYPEXI WYWXEMREFPI IGSRSQMG

ERH WSGMEP HIZIPSTQIRX � LIRGI VIHYGMRK W]WXIQMG VMWO MR XLI PSRKIV XIVQ ERH IRGSYVEKMRK ER

MQTVSZIH FEPERGI FIX[IIR TYFPMG ERH TVMZEXI VMWO QMXMKEXMSR� ;I GSRGPYHI [MXL E W]RSTWMW SJ

SYV VIGSQQIRHEXMSRW MR XLIWI JMZI OI] EVIEW�

• +SZIVRQIRX WLSYPH WIIO XS HIZIPST XLI WXSGO SJ LYQER GETMXEP XLVSYKL MRGVIEWMRK

TEVXMGMTEXMSR MR ERH XLI UYEPMX] SJ WIGSRHEV] IHYGEXMSR� ERH VIHYGMRK JIVXMPMX] VEXIW�

• 6EXLIV XLER IRKEKMRK MR HMVIGX MRZIWXQIRX� KSZIVRQIRX WLSYPH GVIEXI ER DIREFPMRK

IRZMVSRQIRX XS MRJSVQ ERH IRGSYVEKI HSQIWXMG ERH JSVIMKR MRZIWXQIRX�

• +SZIVRQIRX QYWX WIIO XS HIZIPST XLI FYWMRIWW IRZMVSRQIRX XLVSYKL�

• QMRMQMWMRK GSVVYTXMSR ERH FYVIEYGVEXMG MRIJJMGMIRG]�

• GSRHYGXMRK PIKEP ERH MRWXMXYXMSREP VIJSVQ XS IRJSVGI GVIHMXSVW VMKLXW� IRGSYVEKI

XVERWTEVIRG] ERH E PIZIP TPE]MRK JMIPH JSV EPP IGSRSQMG EKIRXW�

• HIZIPSTMRK XLI JMRERGMEP WIGXSV F] QMRMQMWMRK QEGVSIGSRSQMG HMWVYTXMSR ERH GLEVKMRK

XLI GIRXVEP FERO [MXL VIWTSRWMFMPMX] JSV XLI WXEFMPMX] SJ XLI JMRERGMEP WIGXSV�

• 4VMZEXMWEXMSR LEW E OI] VSPI XS TPE] F] TVIZIRXMRK HMVIGX WXEXI MRXIVJIVIRGI MR QEVOIXW ERH

MQTVSZMRK IJJMGMIRG]� ,S[IZIV� TVMZEXI WIGXSV EGXMZMX] QYWX FI GSQTIXMXMZI � LIRGI XLI

RIIH JSV XLI EHSTXMSR ERH IRJSVGIQIRX SJ GSQTIXMXMSR TSPMG]�

23

• (I RSZS TVMZEXI WIGXSV EGXMZMX] LEW FIIR WLS[R XS FI E HVMZMRK JSVGI SJ IGSRSQMG KVS[XL

MR QER] IGSRSQMIW� ,IRGI IRXVITVIRIYVMEP STTSVXYRMX] ERH EGXMZMX] QYWX FI JSWXIVIH

XLVSYKL IHYGEXMSR ERH PIKEP� MRWXMXYXMSREP ERH MRJVEWXVYGXYVEP HIZIPSTQIRX�

24

&S\ ��� 6YW&S\ ��� 6YWWWMER 4VMER 4VMMZZEEXMWXMWEEXMSRXMSR

:SYGLIV FEWIH QEWW TVMZEXMWEXMSR� �������� XVERWJIVVIH S[RIVWLMT SJ ������ JMVQW ZIV]

VETMHP]� ERH QEMRP] XS lMRWMHIVWz� -R ����� WSQI ��� SJ TVMZEXMWIH JMVQW [IVI QENSVMX]

S[RIH F] MRWMHIVW� ERH SRP] ��� F] SYXWMHI S[RIVW� IMXLIV HSQIWXMG SV JSVIMKR� 8LI LSTI

[EW XLEX�

• JMRERGMEP HMWGMTPMRI [SYPH JSVGI VIWXVYGXYVMRK�

• SYXWMHIVW [SYPH JSVGI WIGSRHEV] XVEHMRK ERH TYVGLEWI WXEOIW�

• RSR�ZSYGLIV QIXLSHW [SYPH FI YWIH XS TVMZEXMWI XLI VIQEMRMRK WLEVIW XS SYXWMHIVW�

-R JEGX� XLMW HMH RSX SGGYV FIGEYWI�

• MRWMHIVW VIEGXIH LMKLP] HIJIRWMZIP]� ERH HMH RSX TIVQMX VIWXVYGXYVMRK SV SYXWMHIV

MRZSPZIQIRX�

• FYHKIX GSRWXVEMRXW VIQEMRIH WSJX� PIEHMRK XS [MHIWTVIEH MRXIV�IRXIVTVMWI EVVIEVW ERH FEVXIV�

• XLI TSSV JMRERGMEP TSWMXMSR SJ JMVQW HMWGSYVEKIH SYXWMHIVW

• XLIVI [EW ER EGYXI PEGO SJ MRWXMXYXMSREP YRHIVTMRRMRKW ERH WEJIKYEVHW� I�K� JSV QMRSVMX]

WLEVILSPHIVW� [LMGL TVIZIRXIH XLI IQIVKIRGI SJ WIGSRHEV] XVEHMRK�

• KSZIVRQIRX TSPMGMIW [IVI RSX GSRHYGMZI XS XLI FYWMRIWW IRZMVSRQIRX� [MXL TIREP XE\EXMSR

ERH LMKL� EVFMXVEV] FYVIEYGVEXMG MRXIVZIRXMSR�

• XLI WIGSRH TLEWI SJ TVMZEXMWEXMSR [EW lE JVEYHYPIRX WLEQFPIWz �2IPPMW ������� [MXL MRWMHIVW

WXVIRKXLIRMRK XLIMV TSWMXMSR ERH JSVIMKRIVW PEVKIP] I\GPYHIH�

8S WYQQEVMWI� 6YWWMEW TVMZEXMWEXMSR TVSKVEQQI LEW FIIR E QENSV GEYWI SJ MXW TVSFPIQW� 8S

UYSXI 2IPPMW ������ l&] IQTLEWMWMRK W[MJX S[RIVWLMT GLERKI FIJSVI �SV MRWXIEH SJ� XLI

FYMPHMRK SJ QEVOIX�WYTTSVX MRWXMXYXMSRW r FEWMG GETMXEP QEVOIX JVEQI[SVO� QMRMQEP

WLEVILSPHIV MRJSVQEXMSR ERH TVSXIGXMSR W]WXIQW� IRJSVGIEFPI GSRXEGXW� E QSHMGYQ PIZIP SJ

GETEGMX] ERH TVSFMX] MR XLI WYTIVZMWMRK TYFPMG WIGXSV r ERH [MXLSYX FVIEOMRK YT XLI LYKI

QSRSTSPMWXMG SV SPMKSTSPMWXMG TVSHYGIVW MR SVHIV XS WXMQYPEXI MRXIVREP GSQTIXMXMSR� XLI ZSYGLIV

TVSKVEQQI PIJX XLI QEWW SJ RI[ WLEVILSPHIVW TS[IVPIWW XS GSYRXIVEGX QERMTYPEXMSRW SJ XLI

[IPP TPEGIH QEREKIVW ERH XLIMV WYTTSVXIVW MR XLI JMRERGMEP GSQQYRMX]z�

25

Table 2.1 Human Capital Development and Sustainable Growth7XYH]7XYH] -RJPYIRXMEP *EGXSV-RJPYIRXMEP *EGXSV 1EKRMX1EKRMXYYHI SJ )JJIGXHI SJ )JJIGX

&EVVS ERH 0II ������ 1EPI 7IGSRHEV]�

7GLSSPMRK

3RI ]IEV MRGVIEWI MR QEPI WIGSRHEV]�

WGLSSPMRK HMVIGXP] EWWSGMEXIH [MXL ����

TIVGIRX TIV ERRYQ MRGVIEWI MR KVS[XL VEXI

SJ VIEP TIV GETMXE +(4

&EVVS ������ *IVXMPMX] 3RI TIVGIRX VIHYGXMSR MR JIVXMPMX] VEXI

EWWSGMEXIH [MXL E ���� TIVGIRX MRGVIEWI MR

XLI VIEP TIV GETMXE +(4 KVS[XL VEXI

&EVVS ERH 0II ������ 0MJI )\TIGXERG] 3RI WXERHEVH HIZMEXMSR MRGVIEWI MR PMJI

I\TIGXERG] EWWSGMEXIH [MXL ��� TIVGIRX

TIV ERRYQ MRGVIEWI MR KVS[XL VEXI SJ VIEP

TIV GETMXE +(4

Table 2.2 Physical Capital Development and Sustainable Growth7XYH]7XYH] -RJPYIRXMEP *EGXSV-RJPYIRXMEP *EGXSV 1EKRMX1EKRMXYYHI SJ )JJIGXHI SJ )JJIGX

&EVVS ERH 0II ������ 6EXMS SJ -RZIWXQIRX XS +(4 �� TIVGIRX MRGVIEWI MR MRZIWXQIRX XS

+(4 VEXMS EWWSGMEXIH [MXL ��� TIVGIRX

TIV ERRYQ MRGVIEWI MR XLI KVS[XL VEXI

SJ VIEP TIV GETMXE +(4

&EVVS ������ +SZIVRQIRX )\TIRHMXYVI 3RI YRMX MRGVIEWI MR XLI VEXMS SJ

KSZIVRQIRX GSRWYQTXMSR �I\GPYHMRK

IHYGEXMSR ERH LIEPXL WTIRHMRK� XS

RSQMREP +(4 EWWSGMEXIH [MXL E ����

YRMX HIGVIEWI MR TVMZEXI MRZIWXQIRX

EGXMZMX]� ERH E ���� YRMX HIGVIEWI MR XLI

KVS[XL VEXI SJ VIEP TVI GETMXE +(4 MJ

XLI MRZIWXQIRX VEXMS MW LIPH GSRWXERX�

1EYVS ������ 'SVVYTXMSR ERH &YVIEYGVEXMG

)JJMGMIRG]

3RI WXERHEVH HIZMEXMSR MQTVSZIQIRX

MR GSVVYTXMSR MRHI\ �FYVIEYGVEXMG

IJJMGMIRG]� EWWSGMEXIH [MXL ��� TIVGIRX

����� TIVGIRX� MRGVIEWI MR MRZIWXQIRX XS

+(4 VEXMS�

&IGO� 0IZMRI ERH

0SE]^E ������

*MRERGMEP 7IGXSV

(IZIPSTQIRX

6IWYPXW WYKKIWX XLEX E ��� TIVGIRX

MRGVIEWI MR GVIHMX XS XLI TVMZEXI WIGXSV

EWWSGMEXIH [MXL E ��� TIVGIRX MRGVIEWI

MR VIEP TIV GETMXE +(4 KVS[XL TIV

ERRYQ

26

References

%HIW� %� ERH (M 8IPPE� 6� ������ D'SQTIXMXMSR ERH 'SVVYTXMSR� QMQIS� /IFPI 'SPPIKI�

3\JSVH 9RMZIVWMX]

%HIW� %� ERH (M 8IPPE� 6� ������ D2EXMSREP 'LEQTMSRW ERH 'SVVYTXMSR� 7SQI 9RTPIEWERX

-RXIVZIRXMSRMWX %VMXLQIXMG� 8LI )GSRSQMG .SYVREP� ':--� TT� ���������

%PIWMRE� %� ERH 6SHVMO� (� ������ D(MWXVMFYXMZI 4SPMXMGW ERH )GSRSQMG +VS[XL� 5YEVXIVP]

.SYVREP SJ )GSRSQMGW� :SP����� -WWYI � �1E]�� TT� �������

&EVVS� 6�.� ������ D(IXIVQMRERXW SJ )GSRSQMG +VS[XL� % 'VSWW�'SYRXV] )QTMVMGEP 7XYH]�2&)6 ;SVOMRK 4ETIV ����

&EVVS� 6�.� ������ D)GSRSQMG +VS[XL MR E 'VSWW 7IGXMSR SJ 'SYRXVMIW� 5YEVXIVP] .SYVREP SJ

)GSRSQMGW� :SP� ���� 2S� � �1E]�� TT� �������

&EVVS� 6�.� ERH 0II� .��;� ������ D7SYVGIW SJ )GSRSQMG +VS[XL� 'EQFVMHKI�6SGLIWXIV'SRJIVIRGI 7IVMIW SR 4YFPMG 4SPMG]� :SP���� TT� ����

&IGO� 8�� 0IZMRI� 6� ERH 0SE]^E� 2� ������ D*MRERGI ERH XLI 7SYVGIW SJ +VS[XL� .YRI� QMQIS

&IZER� %�%� ERH )WXVMR� 7� ������ D8LI (IXIVQMRERXW SJ *SVIMKR (MVIGX -RZIWXQIRX MR

8VERWMXMSR )GSRSQMIW � 1IEWYVMRK XLI -QTEGX SJ %GGIWWMSR 2IKSXMEXMSRW� 0SRHSR &YWMRIWW

7GLSSP� QMQIS�

&VS[R� .�(� ERH )EVPI� .�7� ������ D'SQTIXMXMSR� +ISKVETL]� ERH *MVQ 4IVJSVQERGI� 0IWWSRW

JVSQ 6YWWME� 7-8)� 7XSGOLSPQ 7GLSSP SJ )GSRSQMGW� QMQIS�

'EVPMR� ;�� *VMIW� 7�� 7GLEJJIV� 1�)� ERH 7IEFVMKLX� 4� ������ 'SQTIXMXMSR ERH )RXIVTVMWI

4IVJSVQERGI MR 8VERWMXMSR )GSRSQMIW� )ZMHIRGI JVSQ E 'VSWW�'SYRXV] 7XYH]� QMQIS

'EZIW� 6�)� ERH &EVXSR� (�6� ������ )JJMGMIRG] MR 9�7� 1ERYJEGXYVMRK -RHYWXVMIW� 1-8 4VIWW�

'EQFVMHKI� 1EWWEGLYWIXXW

'PEVOI� +�6�+� ������ D1SVI )ZMHIRGI SR -RGSQI (MWXVMFYXMSR ERH +VS[XL� 9RMZIVWMX] SJ

6SGLIWXIV� QMQIS�

HI 0SRK� .�&� ERH 7YQQIVW� 0�,� ������ D)UYMTQIRX -RZIWXQIRX ERH )GSRSQMG +VS[XL�5YEVXIVP] .SYVREP SJ )GSRSQMGW� :SP����� 2S�� �1E]�� TT�������

(YX^�� 1�%� ERH ,E]VM� %� ������ D(SIW 1SVI -RXIRWI 'SQTIXMXMSR 0IEH XS ,MKLIV +VS[XL#�

QMQIS

)EVPI� .�7� ERH )WXVMR� 7� ������ D4VMZEXMWEXMSR� 'SQTIXMXMSR ERH &YHKIX 'SRWXVEMRXW� QMQIS

)&6( ������ 8VERWMXMSR 6ITSVX� 8LI )YVSTIER &ERO JSV 6IGSRWXVYGXMSR ERH (IZIPSTQIRX�

0SRHSR

*MWQER� 6� ERH +EXXM� 6� ������� D(IGIRXVEPM^EXMSR ERH 'SVVYTXMSR� 'VSWW�'SYRXV] ERH 'VSWW�

7XEXI )ZMHIRGI� QMQIS� ;SVPH &ERO� ;EWLMRKXSR (�'�

27

*V]HQER� 6�� +VE]� '�� ,IWWIP� 1� ERH 6ETEG^]RWOM� %� ������ D;LIR (SIW 4VMZEXM^EXMSR;SVO# 8LI -QTEGX SJ 4VMZEXI 3[RIVWLMT SR 'SVTSVEXI 4IVJSVQERGI MR 8VERWMXMSR )GSRSQMIW�

5YEVXIVP] .SYVREP SJ )GSRSQMGW� :SP����� 2S��� 2SZIQFIV� TT� �������

+IVSWOM� 4�%� ������ D-RRSZEXMSR� 8IGLRSPSKMGEP 3TTSVXYRMX]� ERH 1EVOIX 7XVYGXYVI� 3\JSVH

)GSRSQMG 4ETIVW� :SP���� TT��������

,YXLIV� .� ERH 7LEL� %� ������ D% 7MQTPI 1IEWYVI SJ +SSH +SZIVRERGI ERH MXW %TTPMGEXMSR XSXLI (IFEXI SR XLI %TTVSTVMEXI 0IZIP SJ *MWGEP (IGIRXVEPM^EXMSR� ;SVPH &ERO ;SVOMRK 4ETIV

7IVMIW� 2S������;EWLMRKXSR (�'�

/VYIKIV� %�3� ������ D+SZIVRQIRX *EMPYVIW MR (IZIPSTQIRX� .SYVREP SJ )GSRSQMG

4IVWTIGXMZIW� -: �7YQQIV�� TT�����

0E 4SVXE� 6� ERH 0STI^�HI�7MPEVIW� *� ������ D8LI &IRIJMXW SJ 4VMZEXM^EXMSR� )ZMHIRGI JVSQ

1I\MGS� 5YEVXIVP] .SYVREP SJ )GSRSQMGW� :SP����� TT����������

0EQFWHSVJJ� .� +� ������ D8LI -QTEGX SJ 'SVVYTXMSR SR 'ETMXEP %GGYQYPEXMSR� QMQIS�

+¸XXMRKIR 9RMZIVWMX]

0IMXI� '� ERH ;IMHQERR� .� ������ D(SIW 1SXLIV 2EXYVI 'SVVYTX# 2EXYVEP 6IWSYVGIW�'SVVYTXMSR ERH +VS[XL� -RXIVREXMSREP 1SRIXEV] *YRH ;SVOMRK 4ETIV� ������ .YP]

0IZMRI� 6� ������ D0E[� *MRERGI ERH )GSRSQMG +VS[XL� .YP]� QMQIS

0IZMRI� 6� ERH 6IRIPX� (� ������ D% 7IRWMXMZMX] %REP]WMW SJ 'VSWW�'SYRXV] +VS[XL6IKVIWWMSRW� %QIVMGER )GSRSQMG 6IZMI[� :SP���� 2S�� �7ITXIQFIV�� TT��������

1EROM[� 2�+�� 6SQIV� (� ERH ;IMP� (�2� ������ D% 'SRXVMFYXMSR XS XLI )QTMVMGW SR)GSRSQMG +VS[XL� 5YEVXIVP] .SYVREP SJ )GSRSQMGW� :SP����� -WWYI � �1E]�� TT��������

1EYVS� 4� ������ D'SVVYTXMSR ERH XLI 'SQTSWMXMSR SJ +SZIVRQIRX )\TIRHMXYVI� .SYVREP SJ

4YFPMG )GSRSQMGW� 0<-<� TT��������

1EYVS� 4 ������ D8LI )JJIGXW SJ 'SVVYTXMSR SR +VS[XL� -RZIWXQIRX ERH +SZIVRQIRX

)\TIRHMXYVI� % 'VSWW�'SYRXV] %REP]WMW� D'SVVYTXMSR ERH XLI +PSFEP )GSRSQ]� ;EWLMRKXSR

(�'�� -RWXMXYXI JSV -RXIVREXMSREP )GSRSQMGW� TT�������

1EYVS� 4� ������ D'SVVYTXMSR ERH +VS[XL� 5YEVXIVP] .SYVREP SJ )GSRSQMGW� :SP����� 2S��

�%YKYWX�� TT��������

1SVWI� 6� ������ D8LI 4EVEHS\ SJ 4VMZEXMWEXMSR� 4VMZEXMWEXMSR -RXIVREXMSREP� 0SRHSR� -WWYI 2S

���� (IGIQFIV

1YVTL]� /�1�� 7LPIMJIV� %� ERH :MWLR]� 6�;� ������ D-RHYWXVMEPM^EXMSR ERH XLI &MK 4YWL�

.SYVREP SJ 4SPMXMGEP )GSRSQ]� :SP���� -WWYI � �3GXSFIV�� TT����������

2IPPMW� .� ������ D8MQI XS 6IXLMRO 4VMZEXM^EXMSR MR 8VERWMXMSR )GSRSQMIW� -*'� (MWGYWWMSR

4ETIV 2S� ��� 8LI ;SVPH &ERO� ;EWLMRKXSR (�'�

2MGOIPP ������ D'SQTIXMXMSR ERH 'SVTSVEXI 4IVJSVQERGI� .SYVREP SJ 4SPMXMGEP )GSRSQ]�

:SP����� 2S��� TT��������

28

4EPHEQ� 1� ������ D8LI &MK 4EXXIVR SJ 'SVVYTXMSR� )GSRSQMGW� 'YPXYVI ERH XLI 7IIWE[

(]REQMGW� %EVLYW 9RMZIVWMX]� (IRQEVO� QMQIS� .YRI

4SLP� +�� %RHIVWSR� 6�)�� 'PEIWWIRW� 7� ERH (NEROSZ� 7� ������ D4VMZEXM^EXMSR ERH

6IWXVYGXYVMRK MR 'IRXVEP ERH )EWXIVR )YVSTI� )ZMHIRGI ERH 4SPMG] 3TXMSRW� ;SVPH &ERO

8IGLRMGEP 4ETIV 2S����� 8LI ;SVPH &ERO� ;EWLMRKXSR (�'�

6I]RSPHW� 4�(�� ,E]� 1� ERH 'EQT� 7�1� ������ +PSFEP )RXVITVIRIYVWLMT 1SRMXSV� ����

)\IGYXMZI 6ITSVX� /EYJJQER 'IRXVI JSV )RXVITVIRIYVMEP 0IEHIVWLMT EX XLI )[MRK 1EVMSR

/EYJJQER *SYRHEXMSR

7QMXL� %� ������ 8LI 6IXYVR XS )YVSTI� 4VSFPIQW SJ -RXIKVEXMRK )EWXIVR )YVSTI MRXS XLI

)YVSTIER )GSRSQ]��1EGQMPPER� 0SRHSR

8ERHSR� 4� ������ D% 7YVZI] SJ 4VMZEXMWEXMSR� &SWXSR 9RMZIVWMX] -RXIVREXMSREP 0E[ .SYVREP�

:SP���� 2S��� TT�������

;SVPH &ERO ������ ;SVPH (IZIPSTQIRX 6ITSVX� 8LI 7XEXI MR E 'LERKMRK ;SVPH��;EWLMRKXSR

(�'�

=SYRK� %� ������ D8LI 8]VERR] SJ 2YQFIVW� 'SRJVSRXMRK XLI 7XEXMWXMGEP 6IEPMXMIW SJ XLI )EWX%WMER +VS[XL )\TIVMIRGI� 5YEVXIVP] .SYVREP SJ )GSRSQMGW� :SP����� 2S�� �%YKYWX�� TT�����

��

29

Endnotes

1 Mankiw, Romer and Weil (1992) find the percentage of the working age population in secondary school to bepositively and significantly related to GDP growth; Barro and Lee (1996) study 116 countries over the period1965 to 1985 and find a significant positive correlation between secondary schooling and the growth rate of precapita real GDP, a result confirmed by Levine and Renelt (1992).

2 Barro and Lee (1996), Barro (1996)

3 Barro (1996)

4 Young (1995)

5 Barro and Lee (1996)

6 Levine and Renelt (1992)

7 Krueger (1990)

8 de Long and Summers (1994)

9 Murphy, Shleifer and Vishny (1989)

10 Levine and Renelt (1992)

11 Barro (1991)

12 Alesina and Rodrik (1994), Clarke (1993)

13 Alesina and Rodrik (1994)

14 Huther and Shah (1998), Fisman and Gatti (1999).

15 Paldam (1999)

16 Ades and Di Tella (1995, 1997)

17 Treisman (1999), Leite and Weidmann (1999)

18 Mauro (1995)

19 Mauro (1997, 1998)

20 Lambsdorff (1998)

21 Beck, Levine and Loayza (1999)

22 Levine (1997)