LIBERALIZATION OF ECONOMY

Liberalization of Economy

Liberalization of Economy

Introduction

The expansion of freedom of economic activity, full or partial withdrawal of the political, legal and administrative restrictions on private initiative is known as Liberalization of the economy. At the present stage of historical process of economic liberalization, it has acquired a global character of the global trend, covering more countries opening space for the mechanisms of market regulation. It reduces the government intervention in the economy in its administrative forms, and also in forms of direct government regulation. The main function of government is to create and maintain a competitive environment through the adoption of economic and civil law simplifying and reducing the cost of the establishment of new private enterprises, support for small and medium businesses, gain access to civil proceedings, etc (Arndt, 1987).

Domestic economic liberalization is occurring within the national economies, privatization of state enterprises, expanding freely determine prices and incomes, interest rates, credit conditions, etc. In India privatized firms are now about 70% of industrial output. Liberalization also takes the form of privatizing of state enterprises, in which the state's share in the equity of many companies is reduced by the sale of shares. However, privatization has not yet led to the formation of the countries effective property and, therefore, the liberalization of the Russian economy is still far from complete (Agosin & Tussie, 1993).

Solow Growth Model

Growth model of Robert Solow (1956), known as the exogenous growth model or the neoclassical growth model is a model macro created to explain the economic growth and the variables that affect the long term.

The Solow model explains how to grow the domestic production of goods and services through a quantitative model. The model basically involves national output (Y), the savings rate (s) and the provision of fixed capital (K). The model assumes that the gross domestic product (GDP) is equal to domestic national income (i.e., we assume a "closed economy" and therefore there are no imports or exports).

The production on the other hand depend on the amount of labour employed (L) and the amount of fixed capital (K) (i.e. machinery, equipment and other resources used in production) and the technology available (if the technology to improve the same amount of labour and capital could produce more, although the model is usually assumed that the level of technology remains constant). The model assumes that the way to increase GDP is by improving the allocation of capital (K). That is, what is produced in a year a part is saved and invested in accumulating more capital or fixed capital (plant, machinery), so that next year may produce a slightly larger amount of goods, since there will be more machinery available for production (Lepel, 2007).

In this model the economic growth is mainly due to the steady accumulation of capital , if every year increases the available facilities and equipment (fixed capital) to produce progressively higher yields are obtained, whose long-term cumulative effect will have a noticeable increase production and, therefore, remarkable economic ...