MULTI-LEVEL INTERACTIONS OF GOVERNMENT AND PRIVATE SECTORS IN ECONOMIC DEVELOPMENT

Abstract

In the process of economic development of a large number of countries that have succeeded in their modernization and industrialization, the national government has played a substantial role in leading and guiding the development of the private sectors. The interactions among the national governments, state governments and the private economic sectors can be cast in a dynamic hierarchical decision making framework. In this paper, we formulate the national government and private sector interactions in the Stackelberg leader-follower dynamic game framework. This formulation is based on a specific process of economic development expounded by K. Ohkawa and known as Phase Theory. In the first part, we develop a differential game approach to Phase theory along with performance functions to be optimized. In the second part, we present the vector (sector) augmentation process in which the roles of government and private sectors are clearly interactive and selective given the limited financial resources available to the society. The sector augmentation process is an evolutionary process leading the national socio-economic developmental stage into a higher, more advanced steady state level from which a new decision-making situation evolves.