Social Governance, Growth Paradigm, and Mismatch Problems

Previous crisis episodes highlighted the role of mismatches in propagating crisis dynamics in emerging economies. The relative speed of financial opening as compared with the enhancement of absorptive capacity is a key determinant of the nature and severity of these mismatches. This study examines the pivotal role of social governance in controlling the various types and magnitude of mismatches. The interaction between the structure of social governance and the mismatches in an open environment implies the directions for needed change. While mismatches are inevitable due to the disparity between the social and economic systems, the institutional environment and social governance dictate an evolutionary process. Restructuring without proper development in institutions and governance exacerbates the polarization between the tradable and non-tradable sectors of the economy and in society, thereby weakening the momentum for continual structural reform. It is important to initiate changes in social governance to effectively control the mismatches and permit sustainable growth via institution-building and policy-making.