The Role of Government in The Economy & Estimating its Effect on Outputs: A comparative Study between Malaysian & Singaporean Government

Topics: Macroeconomics, Economics, Economic growth Pages: 10 (3390 words) Published: March 8, 2014
The Asia Pacific region has been the greatest dynamic part of the world economy throughout the post-war era. Rapid economic growth in the Asian nations has resulted in an change of economic structure as well. Many factors have been identified as the cause of these nations’ relative success - outward orientation, high saving and investment rates, macroeconomic discipline, and other good policies which among these factors relatively explaining region’s success a still matter of considerable debate (Glick & Moreno, 1997). Throughout he post-war period too, the war of industrialization spread out from Japan to South Korea, Taiwan, Hong Kong and Singapore in the 1960s and 1970s. In fact, the wave even expended to the ASEAN-4 which are Indonesia, Malaysia, Philippines and Thailand until to mainland China since 1980s (Park, 1997).

Through continuous economic development, the Asian countries have formed a greater degree of self-sustained development during the period of post-war.. The World Bank (1993) propounds the neo-classical view in its attempt to explain the success of many Asian countries after the post-war period. In its 1993 report the Bank confesses, although unwillingly, that the success story of the region was resulted from the extensive government intervention in markets (Glick & Moreno, 1997). The degree or level of government intervention in the market or economy that effect the economic growth, usually the economists have typically made use of data on government spending. Yet, there were several studies finding a negative correlation between government spending and economic performance, whilst other finding a positive correlation between government spending or to be exact intervention in the market towards the economic growth. For evidence that government intervention that effect economic growth is Hong Kong. Over the years Government of Hong Kong have intervened more than industrialized country governments (Knowles & Garces, 2000). By looking on the example, it has become accepted by the most that neo-classical growth model can help to achieve economic growth apart from Anglo-Saxon economy being practice by the Western. Thus, further discussion will be made on measuring the degree of government intervention in the economy from the perspective of two historically-unique neighbours, Malaysia and Singapore by examining its effect on output for both countries.

Basically, markets are a mechanism for allocating resources. If the state have a good and efficient market that is well regulated and competitive, it can increase consumer welfare, economic growth and total welfare. At their most basic, markets are a mechanism for allocating resources. Well-regulated, competitive markets can maximize consumer welfare, and by raising economic growth, also increase total welfare. When markets work well, firms thrive by providing what consumers want better and more cost-effectively than their competitors. As such, affective competition provides significant benefits for consumer through greater choice, lower prices, and better quality goods and services. Competition also provides strong incentives for firms to be more efficient and innovative, thereby helping raise productivity growth across the economy. Even though market driven by the private sector, the markets will not necessarily deliver the best outcomes for consumers, companies or government. As for that, government sets legal and institutional framework for markets and companies to operate. This is to ensure entities in the markets conduct business appropriately. Markets thus do not exist independently of government, which has legitimate role in intervening in and shaping them. Government can affect markets either through direct participation which is as a market maker or as a buyer or supplier of goods and services. They also can indirectly participate in private markets such as through...
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