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What is the Relationship Between Governance and the Economy

Governments maintain the legal and social framework, provide public goods and services, redistribute income, mitigate externalities, and stabilise the economy. The founders of our country envisioned a relatively restricted role for the government in economic concerns to safeguard and maintain economic and political freedom. Individual buyers and sellers, not the government, make most economic decisions in a market economy like the one created by our Constitution.

Economic Transformation

Economic transformation is the process of (1) shifting labourers and other resources from lower-middle to higher-productivity sectors (structural change) and (2) increasing productivity growth within sectors. As a result, economic transformation emphasises the transition from low- to high-productivity activities in all sectors (tasks or activities combinations of agriculture, manufacturing and services). This shift of resources from low- to high-productivity activities is a major driver of economic growth.

Within-sector productivity growth (also known as ′sector transformation’) is adopting new technologies and management practices that improve production efficiency. It can happen due to existing firms becoming more efficient or due to resources being reallocated from the least productive to the more productive.

Production/value-added measures and trade-based measures can both be used to assess economic transformation. (1) Sector value-added and employment data, which show productivity gaps between sectors; and (2) firm-level productivity measures, which look at average productivity levels of firms within a single sector. 

Generates Productive jobs

Governments agree to generate productive jobs and decent work for all under the Addis Ababa Action Agenda and promote micro, small, and medium-sized enterprises (MSMEs) to ensure that everyone benefits from growth.

The Addis Agenda, in particular:

  • Commits to generate productive jobs and decent work, a major goal of national development policies.
  • Demands that women and men, including people with disabilities, have full and equal access to the formal labour market.
  • It will be useful to integrate the informal economy into the formal economy following local conditions.
  • Commits to establishing and implementing a global plan for youth employment by 2020 and implementing the ILO Global Jobs Pact.
  • Commits to promoting national youth strategies as a critical tool for satisfying young people’s needs and ambitions.

Bring Benefits Across Society

Generating productive jobs requires economic growth, resulting from increased employment and labour productivity. 

  • As a result, the rate of economic expansion determines the absolute limit to which employment and labour productivity growth can occur. The pattern or character of growth, on the other hand, is important. The impact of economic growth on the creation of productive jobs is determined by the pace of growth and the efficiency with which growth is translated into productive jobs. 
  • The latter is influenced by several factors, including the growth sector composition and the capital/labour intensity of growth within certain sectors. Increasing both the number of jobs and productivity, as well as employment earnings, is frequently necessary.
  • To determine whether economic growth has met the demand for more jobs and higher productivity/incomes, an evaluation of economic development from the standpoint of employment should be conducted. 
  • Economic sectors must break down such an analysis to generate useful insights. The extent to which economic growth is linked to and driven by a productive transformation is critical to economic development’s medium and long-term viability.

Measures of Economic Transformation

(1) Sector value-added and employment data, which show firm-level productivity measures and (2) productivity gaps between sectors, which look at average productivity levels of firms within a single sector.


National consumption can lead to higher economic growth. In contrast, remittance and welfare programs can hinder economic growth in most countries. Government and economics is a new field of study that seeks to better understand the role of government in the modern market economy, incentives and actions, and the impact of government actions on economic performance. Creating productive jobs plays an important role in eradicating poverty. Corporate and personal consumption is driven by economic growth. An increase in imports and exports leads to increased corporate tax revenue. In short, government cash flow has improved. This can lead to higher government spending.


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