Major Institutional Requirements for Successful Economic Development
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Let me begin this paper with a quote from an article published in the Rhodesian Journal of Economics: “If one assumes an incremental capital- output ratio for Rhodesia of the order of 3 :1 and a desired rate of economic growth of six per cent per annum this would mean a desired rate of net investment of no less than 18 per cent of GDP.”' This statement, which is based on the Harrod-Domar model of growth, reflects all the properties of modern growth theories such as elegance, quantifiability and deterministic solution. Yet, it seems to be a historical fact that countries least concerned with the implementations of modern growth models have done as well if not better for their people as those countries which have embarked upon various planning schemes. In this paper I will argue that to consider the saving-investment relationship as a major determinant of the rate of growth, and an increase in the supply of investible funds as a major determinant of the increase in the rate of growth is at best misleading and at worst nonsensical. For faster rate of growth of wealth is achieved not merely by increased saving but by more effective institutions for organizing, co-ordinating and directing productive activity.