Government Policies and Economic Development

Consider a developing economy characterized by high levels of poverty, low economic growth, and significant income inequality. The government of this economy is considering implementing various policies to stimulate growth and improve welfare. However, it is crucial to assess which type of government intervention can lead to sustained economic development.

One proposed policy is to increase government spending on infrastructure projects to create jobs and enhance productivity. Another suggestion is to heavily subsidize agricultural sectors to rapidly reduce poverty levels. A third proposal involves implementing strict regulations on foreign direct investment (FDI) to protect domestic industries from international competition.

Which of the following government policies is most likely to lead to long-term economic growth in this context?