In many underdeveloped countries, the state plays an important and inc

In many underdeveloped countries, the state plays an important and increasingly varied role in economic development today. There are four general arguments, all of them related, for state participation in economic development. First, the entrance requirements in terms of financial capital and capital equipment are very large in certain industries, and the size of these obstacles will serve as barriers to entry on the part of private investors. One can imagine that these obstacles are imposing in industries such as steel production, automobiles, electronics, and parts of the textile industry. In addition, there are what Myint calls "technical indivisibilities in social overhead capital." Public utilities, transport, and communications facilities must be in place before industrial development can occur, and they do not lend themselves to small-scale improvements.

A related argument centres of the demand side of the economy. This economy is seen as fragmented, disconnected, and incapable of using inputs from other parts of the economy. Consequently, economic activity in one part of the economy does not generate the dynamism in other sectors that is expected in more cohesive economies. Industrialization necessarily involves many different sectors; economic enterprises will thrive best in an environment in which they draw on inputs from related economic sectors and, in turn, release their own goods for industrial utilization within their own economies.

A third argument concerns the low-leve equilibrium trap in which less developed countries find themselves. At subsistence levels, societies consume exactly what they produce. There is no remaining surplus for reinvestment. As per-capita income rises, however, the additional income will not be used for savings and investment. Instead, it will have the effect of increasing the population that will eat up the surplus and force the society to its former subsistence position. Fortunately, after a certain point, the rate of population growth will decrease; economic growth will intersect with and eventually outstrip population growth. The private sector, however, will not be able to provide the one-shot large dose of capital to push economic growth beyond those levels where population increase eat up the incremental advances.

The final argument concerns the relationship between delayed development and the state. Countries wishing to industrialize today have more competitors, and these competitors occupy a more differentiated industrial terrain than previously. This means that the available niches in the international system are more limited. For today's industrializers, therefore, the process of industrialization cannot be a haphazard affair, nor can the pace, content, and direction be left solely to market forces. Part of the reason for a strong state presence, then, relates specifically to the competitive international environment in which modern countries and firms must operate.

1. According to the passage, all of the following are arguments for state economics intervention EXCEPT

A.the start-up costs of initial investments are beyond the capacities of many private investors.
B. the state must mediate relations betweent he demand and supply sides of the economy.
C. the pace and processes of industrialization are too important to be left solely to market trends.
D.the livelihoods and security of workers should not be subject to the variability of industrial trends.
E. public amenities are rquired to facilitate a favourable business environment .


2. Which of the following best states the central point of the passage?

A. Without state intervention, many less developed countries will not be able to carry out the interrelated tasks necessary to achieve industrialization.
B. Underdeveloped countries face a crisis of overpopulation and lack of effective demand that cannot be overcome without outside assistance.
C. State participation plays a secondary role as compared to private capital investment in the industrialization of underdeveloped countries.
D. Less developed countries are trapped in an inescapable cycle of low production and demand.
E. State economic planning can ensure the rapid development of nonindustrialized countries' natural resources.


3. The author suggests all of the following as appropriate roles for the state in economic development EXCEPT

A. safeguarding against the domination of local markets by a single source of capital
B. financing industries with large capital requirements
C. helping to co-ordinate demand among different economic sectors
D. providing capital inputs sufficient for growth to surpass increases in per capita consumption
E. developing communication and transportation facilities to service industry


4. The author suggests which of the following about the "technical indivisibilities in the social overhead capital" (end of the first paragraph) and the "low-level equilibrium trap" (Highlighted)?

A. The first leads to rapid technological progress; the second creates the demand for technologically sophisticated products.
B. Both enhance the developmental effects of private sector investment.
C. Neither is relevant to formulating a strategy for economic growth.
D. The first is a barrier to private investment; the second can attract it.
E. The first can prevent development from occurring; the second can negate its effects.


5.Which of the following, if true, would cast doubt on the author's argument that state participation is important in launching large-scale industries?

I. Co-ordination of demand among different economic sectors requires a state planning agency.
II. Associations of private-sector investors can raise large amounts of capital by pooling their resources.
III. Transportation and communications facilities can be built up through a series of small-scale improvements.

A.I only
B.II only
C. I and II only
D.II and III only
E.I, II and III


6. According to the passage, the "low-level equilibrium trap" in underdeveloped countries results from

A.the tendency for societies to produce more than they can use
B.intervention of the state in economic development
C.the inability of market forces to overcome the effects of population growth
D.the fragmented and disconnected nature of the demand side of the economy
E.one-shot, large doses of capital intended to spur economic growth