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Terms in this set (17)

1. Investment in human capital; education and training need to be available to improve the quality of the labour workforce. It is a positive externality because the benefits are felt by the people who receive the education and felt across the economy. This involves providing the skills/knowledge that people need to know to enter the labour workforce and also the retraining of workers to keep up with changing economic circumstances. Methods include schools, unis, apprenticeship programmes etc.

2. Research and Development (R&D); involves any pending directed towards the innovation and improvement of products and processes. Governments can encourage R&D by firms by offering tax incentives, such as tax credits (firms don't have to pay tax on the profit made by that R&D). They can also guarantee intellectual property rights like patents and copyrights.

3. Provision and maintenance of infrastructure; infrastructure is defined as large scale capital, and is necessary for economic activity to take place. Education/health systems and the legal framework of a country are also a type of infrastructure.

4. Support for industrial policies; targeted government interventions to drive the development of specific economic sectors. This increases the productivity of specific industries and helps them to grow. The government also helps them to improve the competitive nature through anti-monopoly laws. A common policy is import substitution where the government targets a particular industry with the goal to switch production from abroad to the domestic economy.