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Periodical article Periodical article Leiden University catalogue Leiden University catalogue WorldCat catalogue WorldCat
Title:The Role of the State in Economic Development: Cross-Regional Experiences
Author:Collier, PaulISNI
Periodical:Journal of African Economies
Volume:7 Supplement
Geographic term:Africa
Subjects:foreign investments
Development and Technology
Economics and Trade
Politics and Government
External link:https://jae.oxfordjournals.org/content/7/suppl_2/38.full.pdf
Abstract:This paper reviews two roles of the State: the provision of security and the regulation of economic activity. It shows that in both respects until recently African governments provided a poor environment, and that this discouraged private investment. Africa would have much to gain from establishing a less capital-hostile environment. However, there is a caveat that is the focus of this paper. Although the prevailing rate of return on capital depends on the prevailing environment, the location of capital depends on expected rather than prevailing returns. The restoration of peace is an improvement on war, but it does not necessarily restore the prospects of war to their prewar level. Similarly, the dismantling of a control regime may be an improvement in the investment climate but investors may fear that policy will be reversed. The strategies a government needs to adopt in order to improve its risk rating are distinct from the general run of reform. Governments need to construct lock-in mechanisms, both domestic and external, and to signal their type by accelerating the most politically costly reforms. Bibliogr., sum. (Comments by Benno J. Ndulu, p. 215-218.)