Impact of public sector and state policy intervention on growth and development of private sector in Libya

Second year progression report
Impact of public sector and state policy intervention on growth
and development of private sector in Libya
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Table of Contents
1. Introduction..................................................................................................................................3
2. Literature Review.........................................................................................................................3
3. Why this research.........................................................................................................................4
4. Potential contribution..................................................................................................................5
5. Research aims and objectives......................................................................................................5
6. Research Questions......................................................................................................................5
7. Methodology.................................................................................................................................5
7.1 Questionnaire Design: Questionnaire and semi– structure interview..............................7
7.2 Questionnaire and interview administration......................................................................9
7.3 Empirical models and data analysis techniques...............................................................10
7.4 Preliminary responses of questionnaire............................................................................12
7.5 Semi-structure interview....................................................................................................13
8. Ethical considerations................................................................................................................13
9. Research Timeline......................................................................................................................14
10. References...............................................................................................................................16
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1. Introduction
The huge size of the public sector is one of the major challenges that developing countries
such as Libya are facing. The saturated public sector in Libya, which includes both
government agencies and State Own Enterprises (SOEs), employs significant shares of the
country’s labor force which is considerably higher when compared to North African
countries. For example, employment in the public sector ranges from 22 % in Tunisia to
around 33–35% in Syria, Jordan, and Egypt. In Libya, however, public sector employees
make up over 80% of the Libya’s labor force with about 10% being in the country’s oil
industry (World Bank, 2018).
In this report, the public sector in Libya is characterised mainly by a strong dominance
over the private sector. This will help in completing the respective project in an effective
manner and state interventions on the overall growth and development of the private sector.
The respective report includes literature review and research methodology. This will help the
readers in developing a proper understanding of the research topic.
2. Literature Review
The respective chapter, literature review, it is important to first address the theoretical
background of the arguments that have been developed by economists. Second, it is a
question of presenting some experience of the dominance of the public sector over the private
sector.
In the first section, different approaches have been adopted by the researcher in order to
complete the literature review section effectively. According to the liquidity desire principle,
Keynes (1936) indicated that to make sure full employment, a lower degree of interest quotes
is needed than liquidity choice costs. According to this theorist, funding is decided with the
aid of the level of effective demand and the hobby charge. It does not rely upon savings.
Investment demand is a decreasing function of the interest rate, and an increasing function
of the marginal efficiency of capital (Keynes, 1936). This is explained by the fact that the
higher the interest rate, the more investment projects are reduced, thus generating a reduction
in the growth rate. In this case, the state must intervene in the market in the short term to
reduce the unemployment rate. It undertakes to encourage public investment at the expense of
private investment, while minimizing interest rates. This policy is known by the theorists of
financial liberalization policy (McKinnon, 1973 and Shaw, 1973) as financial repression
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policy. According to these economists, the financial repression policy is a set of measures,
imposing monetary and political authorities to finance the deficits and debts of the state.
According to Keynesian theory, investment is determined by the level of effective demand
and the interest rate, but contrary to the theory of financial liberalization, it does not depend
on savings. Investment demand is a decreasing function of the interest rate and an increasing
function of the marginal efficiency of capital (the higher the interest rate, the fewer
investment projects will be carried out and therefore the growth rate slows down). Thus, the
state must intervene in the market in the short term to encourage investment and reduce
unemployment. The Post Keynesian Burkett & Dutt (1991) discussed the hypothesis of the
savings-investment relationship. According to these researchers, an increase in the interest
rate (i) stimulates savings (S), which will lead to a decrease in effective demand (ED), and
consequently investment (I) and the growth rate (g) decrease.
Referring to the Keynesian approach, McKinnon & Shaw (1973) showed that the
dominance of the public quarter to the detriment of the personal sector is mainly the end result
of a fixed of kingdom interventions aimed toward repressing banking pastime and the
offerings supplied through the financial machine to savers, buyers, and producers. The
financial repression coverage is then not able to gain a greatest economic growth fee due to
the fact hobby quotes are set too low. Stiglitz & Weiss (1981) showed that the credit score
marketplace is characterised by an asymmetry of facts between banks and buyers, for this
reason the want to ration credit even in a aggressive market.
On the other hand, it is a question of presenting the conditions required for prosperity of
financial liberalization policy. Primitive conditions, also referred to macroeconomic stability
and prudential regulation and banking supervision. McKinnon (1993) found that
macroeconomic stability is mandatory for the prosperity of financial reforms. However,
Gibson & Tsakalotos (1994) pointed out that this modality alone cannot guarantee the success
of liberalisation. Andersen & Tarp (2003) showed that banking sector reforms are necessary
for the success of financial liberalisation. Second, it is a matter of discussing the order of
financial reform adoption. The third question is related with the liberalisation of the capital
account.
The second section of the respective chapter mainly highlights certain lessons that are
learned from financial liberalisation. Certain experiences are also addressed and this includes
the United States, Eastern Europe, Russia, Asia as well as the MENA region.
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