Macroeconomic Policy: Social Sector And Economic Development

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empirical front, some economists have made an attempt to link different components of public expenditure viz-social sector and economic sector with growth but there exists no uniform result. The level of social sector spending and its impact on the growth has emerged as a major public choice issue being faced by economies in transition. Therefore, it is important to understand this relationship in context of India, which is undergoing macroeconomic adjustment since economic liberalization of 1990s. It has been argued by policymakers that social sector expenditure plays an important role in expanding the course of economic development of a nation via imparting social justice. The changing needs of the economy and society to enhance overall standard…show more content…
Therefore, increasing the income level is the main concern of public policies. Until the endogenous growth theories, the traditional neoclassic approach - that underlined that the macroeconomic policies of the government are not effective on the economic growth - dominated the growth literature. On the contrary, the endogenous growth models take government expenditures in health, education, and social security and even in defense areas into account while modeling the growth of countries. However, the endogenous growth models have focused on the role of human capital as a key driver of economic growth which directs the public expenditures to invest in the human capital stock. The combination of the expenditures on human capital also matters in the endogenous growth models that there are important and direct relations between the government expenditures like education, health, social protection and social security and economic growth. Education is one of the most important factors that contributes to the sustainable economic growth and competitiveness of the countries. Therefore, it is expected that education expenditures contribute to the economic growth by increasing the efficiency and productivity levels of individuals. Health expenditures have multiple contributions to economic growth in both the short-run and long run. Healthy workers become…show more content…
However, the effects of social protection expenditures of governments on long-run economic growth are not clear with two opposite evidence. On the one hand, the benefit these programs provide can discourage people from working. Because of the decline in the amount of labor supplied in the economy, the level of output and, in some circumstances, the level of capital investment and hence growth can lower. On the other hand, social protection expenditures will make a positive contribution to the economic growth since the individuals are insured against disease and unemployment risk and therefore they become more productive and motivated to work. These two different suggestions keep the debate open about whether social protection is an expenditure or an investment. The study aims to understand the effects of governments’ expenditures in social areas like education, health, and social protection, which also embodies social security on economic growth for India. The study is organized as follows: In section 2, major Indian social policies are analyzed along with the trends in Indian social expenditures. This is followed by section 3, wherein a brief comparative analysis with other countries is provided. The example of OECD countries and East Asian Model is provided.

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