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From financieristic to real macroeconomics: seeking development convergence in emerging economies (English)

Macroeconomic 'fundamentals' are a most relevant variable for economic development. However, there is wide misunderstanding about which are the 'sound macroeconomic fundamentals,' contributing to sustained economic growth. The approach in fashion in the mainstream world and international finance institutions (IFIs) emphasizes macroeconomic balances of two pillars: low inflation and fiscal balances. The author calls it financieristic macroeconomic balances. Additionally, a frequent assertion in the conventional literature is that an open capital account contributes to impose macroeconomic discipline in emerging economies (EEs). There is strong evidence that financieristic balances have not provided a macroeconomic environment contributing to sustained growth. A third pillar must be added, linked to the productive side of the economy. The behavior of aggregate demand, at levels consistent with potential gross domestic product (GDP), is a crucial part of a third pillar for real macroeconomic balances, which has frequently failed in neoliberal experiences. Similarly crucial parts are well?aligned macro?prices, like interest and exchange rates. Frequently, these prices and aggregate demand have behaved as outliers, as reflected in economies working either well below potential GDP (the most frequent result), or overheated, with a booming aggregate demand and a large external deficit. This paper analyses alternative macroeconomic environments faced by firms and workers in the productive side of the economy (the producers of GDP), and the interrelationship between financial and real variables. The author analyzes alternative structural countercyclical fiscal policies, intermediate exchange rate policies, and capital account approaches.


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    FfrenchDavis, Ricardo

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    Working Paper (Numbered Series)

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    The World Region,

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    From financieristic to real macroeconomics: seeking development convergence in emerging economies

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    aggregate demand;macroeconomic balance;terms of trade;output gap;access to external finance;productive capacity;production frontier;challenges of policy making;economic and social performance;average rate of inflation;terms of trade shock;Exchange Rates;Macroeconomic Policy;external shock;Capital Inflows;real exchange rate;external deficit;stock of capital;international interest rate;domestic macroeconomic policy;open capital account;international financial market;control of inflation;international financial institution;annual average growth;macroeconomic environment;return of capital;world interest rate;private capital flow;gdp growth rate;exchange rate depreciation;highly skilled labor;level of employment;availability of fund;dynamics of growth;capital account regime;access to technology;interest rate increases;foreign currency market;country case study;growth and development;supply of capital;economic growth rate;fixed capital formation;implications for policy;state of knowledge;factor of production;capital account approach;exchange rate anchor;intermediate exchange rate;real business cycle;volatile capital flows;International Finance Institution;rate of growth;exchange rate appreciation;total factor productivity;degrees of freedom;international financial system;current account deficit;composition of output;newly industrialized country;expansion of demand;movement of fund;increase in consumption;volume of investment;installed capacity;capital stock;reducing inflation;asian crisis;human capital;adjustment process;Fiscal policies;fiscal balance;fiscal policy;domestic policies;emerging economy;negative effect;productive factor;Emerging economies;relative price;downward adjustment;effective demand;social balance;price stability;financial flow;monetary policy;domestic spending;public policy;world economy;net transfer;dynamic effect;macroeconomic instability;investment ratio;national income;tradable sector;fiscal deficit;foreign saving;export dynamism;positive shock;factor market;potential output;high unemployment;thematic papers;economic recovery;budget deficit;capital flight;real variable;macroeconomic adjustment;domestic price;cyclical behavior;productive activity;tax proceeds;public deficit;domestic factor;political events;Macroeconomic Management;factor mobility;incomplete market;demand reduction;factor payment;domestic demand;absorptive capacity;Durable goods;Industrialized countries;exogenous changes;construction sector;conditional convergence;increased supply;domestic good;price system;increased imports;tequila crisis;insurance market;existing capacity;foreign financing;financial asset;domestic input;Natural Resources;financial liberalization;net expenditure;domestic currencies;allocative efficiency;inflationary pressure;financial crisis;financial globalization;public expenditure;money supply;technological change;capital outflow;financial intermediation;inflationary process;capital utilization;International Trade;world economic;domestic production;weighted average;constant price;productive investment;dutch disease;external financing;financial resource;pro growth;permanent income;economic reform;domestic saving;broad consensus;subsidiary right;financial balance;Antiinflationary policies;government revenue;money printing;irreversible investment;social indicator;production pattern;financial investment;fiscal account;macroeconomic variable;aggregate supply;relative weight;econometric study;financial factor;empirical knowledge;financial instability;advanced economy;negative relationship;productive asset;production capacity;social effect;expenditure cut;volatile environment;internal conflict;Medium-Sized Enterprises;multilateral institution;productive capital;fiscal discipline;macroeconomic fundamentals;macroeconomic volatility;net result;research assistance;production function;fiscal budget;market transaction;import good;negative shock;productive system;informal markets;dynamic development;working life;public finance



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FfrenchDavis, Ricardo

From financieristic to real macroeconomics: seeking development convergence in emerging economies (English). Commission on growth and development working paper ; no. 44 Washington, D.C. : World Bank Group.