Macroeconomic theory Essay Example | Topics and Well Written Essays - 750 words

Macro economical theory - Essay Example genius consistent theme that emerges from current research is that the growth of real income and the everyplaceall macroeconomic stability - twain internal and external - are mutually interdependent and both form an integral part of an adequate, systematically sustained process of economic development. The simple policy rules that follow areThis paper will render to address the second question, i.e. what distinguishes the countries that followed the optimal policy mix and hence succeeded from those which did non. Perhaps it is useful at this roast to refer to the experience of the successful countries of Asia. Clearly the vast majority of developing economies have failed to lift their economic growth and living standard compared with a small group of Asian economies which excelled. In little over two decades the dynamic Asian economies were able to catch up their former colonial masters slice others stagnated. Two distinguishing economic features of these successful economies stand turn outThe neo-classical economists... Two distinguishing economic features of these successful economies stand out * openness or neutral trade regime and * active government intervention. The neo-classical economists (e.g. Balassa, 1968 Bhagwati, 1978 Krueger, 1978 Little, 1979) emphasize the role of openness. On the other hand, there is a body of literature (e.g. Amsden, 1989 Lee, 1992 Sach, 1987 Wade, 1990) which emphasizes the role active government intervention contend in achieving late industrialization. While both have some elements of truth, over-emphasis of one or the other misses authoritative issues. For example, the neo-classical economists are at unease with the co-existence of high import protection with export orientation, and active government non-price interventions with market-oriented policies in some of these economies. On the other hand, the statists explanation of why in these economies state interventions did no t go fatally wrong as in other developing countries depends crucially on the state being wet. More fundamentally, though, they cannot explain how a strong state emerges, and why some strong dictators (e.g. Marcos or Idi Amin) did not maintain macroeconomic stability and wrecked their economies. One important shortcoming of both explanations is an inadequate way on institutions. None of these approaches takes into account the formal and informal constraints and rigidities in which policy making occurs. This chapter reflects on institutional frameworks that are likely to induce optimal macroeconomic policy response by the government.Institutions and organizationsNobel Laureate economist, Douglas unification (1990, p. 4) defines institutions as any form of