H1 Geo/2009/ OR With reference to one or more examples, critically examine the role of the state in economic development.

(16m) Economic development of a country depends largely on a few factors, namely the infrastructure of the country, the policies implemented in the country (such as the presence of financial incentives), as well as development of human resource. The role of state is critical in the economic development of the country as the state holds the power and authority over the implementation of national policies and development of resources. The largest source of external funds for a country is not any form of development assistance such as loans or grants. Rather, it is foreign direct investment (FDI) that is crucial to the economic development of the nation. FDI represents an enormous supply of financial resources, technology and jobs and is of great potential benefit to emerging economies, and it comes mainly from transnational corporations (TNCS). TNCs are largely profit-driven organizations; therefore they favour areas with financial incentives (a business-friendly environment such as tax reductions) and a population with high literacy and education level. The role of the state comes in here and by ensuring all the needs of the TNCs are created, foreign investors will be attracted. In the long run, economic development will be boosted. Firstly, the state can boost economic development by building up social capital. In the information age whereby human resources are so valuable, the government should provide lifelong skills and learning opportunities by investing in schools, or other further learning institutions. More TNCs are attracted to areas where there is a population with high literacy rate. Secondly, the state should invest on physical infrastructure, primarily in transport and power systems that benefit not only the investors and the citizens as well. Good physical infrastructure brings about accessibility and convenience, which are two of the main factors that are in consideration when a TNC chooses an area to invest in, especially when assembly or manufacturing of goods are involved. Thirdly, in order for a country to be more attractive to investors, the state needs to recognize that there is a need to put in place measures to ensure an environment with reduced hassle costs (such as administrative costs and red tape), which can in turn significantly raise the costs of establishing and setting up a business. Many of these costs include things like tax office registration, foreign investment licensing, building permits as well as import-export permits. Besides these, tax incentives also attract FDI as it lowers the overall costs of setting up a business. Tax incentives include reduced corporate income taxes, tax holidays, and export processing zones (EPZs). An EPZ is a relatively small, geographically separated area within a country. The purpose of an EPZ is to attract export-oriented industries by offering them special favourable investment and trade conditions as compared to the remainder of the host country. Besides EPZs, there are other similar areas in the countries that can be set up to attract FDI. One such example is free trade zone. A free trade zone (FTZ) is one or more areas of a country where tariffs and quotas are completely eliminated and bureaucratic requirements are lowered in hopes of attracting new business and foreign investments. Lastly, economic development efforts by the state should be targeted at reducing poverty, by promoting jobs that match the skills of existing residents, yet at the same time improving the skills of the lower income individuals. Availability of good quality, affordable childcare, transport, healthcare, and housing needs to be ensured as well. With good quality services, people are then ready to move a step forward into economic progress and work together for economic development of the country.