Development studies - essay exercise

Essay Exercise
2. “With the point of departure in the distinction between market failure and government failure, discuss the appropriate level of state intervention in different categories of developing countries.”

The particular roles of the state and the market in the development process have been debated continuously since the end of the Second World War.
In most part of developing countries the argument about market failure had led to adopt state-managed development strategies from 1950s until end 1970s. The “invisible hand”, the main focus of Adam Smith, did not seem capable to help market forces to reach the perfect equilibrium.
Many are the ways by which the market fails. All the so-called “externalities” are not regulated by the supply and demand laws. The positive externalities are benefits which cannot be fully “internalized” in the market as extra profits (i.e. education, research). Again, the negative externalities cannot be fully internalized as extra...