What is Economic Policy Evaluation

Economic Policy

Economic policies play a pivotal role in the development and social growth of any country. The economic policy is designed to serve the twin purpose of wealth creation and social welfare. Financial systems are designed, keeping into mind various factors like demand-side constraints, supply-side conjectures, external and foreign elements, technological developments, etc. Any economic policy must have a clear set of objectives to be achieved in a time-bound manner.

Against this backdrop, there are various parameters and criteria for evaluating any economic policy. Any economic policy evaluation exercise must not be done in isolation and should follow qualitative analysis as well. 

Hence economic policy evaluation, in a nutshell, is an assessment of whether the practices economic policy was able to achieve its said objectives or not.

Evaluation of economic theory is based on the timeline in which the desired results were supposed to be completed. The exercise also encompasses the cost-benefit analysis components. This is done to ascertain if there is any economic value addition, and the output so obtained covers the input cost. In some cases, there is a considerable delay and cost overrun in achieving the results of the given economic policy. Hence any economic policy evaluation method is based on the following parameters:

Demand-side Evaluation

One of the key objectives of any economic policy is to ensure an optimum level of demand to generate employment and drive economic expansion. Hence the financial policy is evaluated against parameters like change in net disposable income, increase in the gross domestic product (GDP), change in industrialization levels, development of sustainable infrastructure, etc. Such parameters form the backbone of any economic policy evaluation. Successfully achieving the target mentioned in the above domains is the hallmark of a successful and holistic economic policy evaluation. 

Supply-side Evaluation

Any economic policy must ensure that there is a symbiotic relationship between demand and supply. If the amount cannot match up with demand, it will lead to inflation and other economic woes. So an economic policy must be evaluated on parameters like was supply and availability of factors of production done cost-effectively, is there an incentive to produce goods and services domestically, etc.

Hence the economic policy evaluation is indirectly a measure of the relationship established between the forces of demand and supply. Any economic policy should strive to reach equilibrium between these two. The evaluation focuses on balance was received or not and if not received, then by how much the target missed. 

Furthermore, the banking sector and financial services' health is another critical feature of economic policy evaluation. It is a given fact that the state of the financial industry is a mirror image of the status quo of the economic policy. Any economic policy evaluation is a direct analysis of the banking sector of the economy. Hence parameters like cash reserve ratio, deposit rate, lending rate, etc., are critical components of economic policy evaluation. It also assesses the respective coverage of the banking services and quality of products offered.

Characteristics of Economic Policies

A sound economic policy ensures that the banks are flush with retail deposits from ordinary people and can lend to corporate clients at lucrative rates. This ensures that commercial projects are carried out in cost-effective manners. So, any economic policy must be evaluated in terms of production and consumption of goods and services. An excellent financial system leads to the creation of wealth via private and public partnerships while ensuring that optimum economic benefits are achieved. 

On a microeconomic level, economic policies can have varying degrees of impact depending upon an individual to an individual. Such an analysis can lead to varying results depending upon the context. However, one common theme against which the microeconomic evaluation of any economic policy is done is the ability to financial plan to create an environment where individual consumers can achieve maximum satisfaction. This maximum satisfaction is performed based on the fact the supply is abundant and homogenous. 

Since this is a perfect constant, it would not be prudent to keep this as a hard and fast rule for economic policy evaluation. However, the more a commercial policy can achieve optimum satisfaction at the micro-level, the more efficient it is touted. In the same vein, microeconomic evaluation of any economic system can be sector-specific or domain-specific or confined to a particular geography. Depending upon the context, industrial policy can be evaluated, or more weightage can be given to a specific sector. 

Hence at the microeconomic level, economic policy evaluation can have multiple interpretations and explanations depending upon context and perception. However, such an assessment should be conducted in a comprehensive and data-driven manner. So micro-economic factors can change in a short time, any such evaluation must keep track of the period under observation.

Different Aspects of Economic Evaluation

In essence, economic policy evaluation is not only quantitative but also has a qualitative aspect to it. Certain aspects of economic policy like the development of human capital, soft image if the country, technological and innovation achieved, growth in social harmony, etc., can be evaluated only in qualitative terms. These factors take time to develop and evolve. So, the qualitative aspects of economic policy evaluation are as follows:

·  Human capital

Any economic policy must be put to a sword based on the human capital it could develop. A country can only progress if its citizens acquire the right skill and education. Hence enhancing the thinking and resonating capabilities of individuals should form a vital part of any economic policy evaluation. 

·  Healthcare and social welfare

Social welfare and development should be another parameter of any economic policy evaluation. By developing a good society, any economic policy can set the tone for significant economic expansion.

Any economic policy can be analyzed at multiple levels, and the tool of analysis might vary. HoweverEconomic Policy, economic policies must be evaluated objectively and should cover all the facets.

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Sep 23, 2020

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