TMJC 2025 J1H2 C1 Lecture 4 Role of State

1 WHAT IS A STATE? A state is a politically-bound space within which the resident population is governed by an authority such as the government. The term ‘the state’ can also be used to refer to the government, which we will be doing so for this topic. WHAT ARE THE MAIN OBJECTIVES OF THE STATE? The state has 2 main economic objectives for intervention in the economy: Promote economic development and raise the standard of living in the country. Reduce social economic disparities within the country (either between social groups or between regions in the country so as to ensure peace and political/economic stability. (A) STATES AS REGULATORS OF ECONOMIC ACTIVITIES AND TRANSACTIONS States play a role in the economic development of a country by regulating how their economies operate as they attempt to control what happens within and out of the country. This is done by: (i) Influencing the country’s industrial structure The state can promote economic development by influencing the industrial structure of the country to become more focused towards manufacturing and service industries. (a) Rural development policies Firstly, the state may implement rural development policies which aim to improve economic productivity of the primary industry. This is done through: i. Land redistribution by the state – to maximise landuse ii. Mechanisation of agriculture industry – to allow release of labour to work in nearby industries iii. Structural reforms to encourage a market -oriented agricultural system – to change from subsistence farming to production for sales For example in Guangdong province of China, the abundant labour supply due to modernisation of agriculture has provided an incentive for TNCs to invest branch assembly plants in the region. (b) Encourage development of manufacturing and service industries Secondly, the state can also encourage development of manufacturing and service industries, which provide higher returns than agriculture. This is achieved by stimulating particular industries and restraining others through the usage of taxes and subsidies, as well as legislation. The government does this through enhancing trade and investment policies to attract TNCs. It may encourage investment by reducing corporate tax, giving tax holidays, and investment Higher 2 (9173) Cluster 1: Development, Economy and Environment TMJC Cluster 1 Lecture 4 Can states influence economic activities? 2025

2 grants to investors. This lowers business cost and hence improves on the country’s export competitiveness. It may also attract investment and imports by reducing tariffs and providing non-tariff barriers to particular industries it wishes to focus on. Trade tariffs refer to import taxes which are only applied when trade cross a boundary Taxes are applied to items either within and across state boundary. For example, i n Singapore, the state offers subsidies for companies involved i n biomedical research suc