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The Impact of Economic Policies on Global Development

1. Introduction

We can ask whether equilibrium adjustment via price alone is reconsidered by the IMF. Each spring, the IMF tends to incorporate geopolitical reticence in its projections. This paper tries and tests possible outright underestimation of potential output and of the output gap by the IMF since the start of the great crisis. We start by presenting some concepts of equilibrium and by underlining the importance of drift underestimation in setting monetary policy. We present proxies for potential growth based on different packaging and substitution of input growth dynamics and define numerical filters to build output gaps. A scatterplot analysis serves to anticipate our conclusion that the IMF and the pick-a-proxy trend to best downshift cyclically adjusted levels (CYA) in recessions (2010, 2012, 2014), to higher degrees than those usually metered during expansion (2011, 2013).

In this study, we argue that present conditions call for an explicit (re)introduction of equilibrium in the IMF growth projections. In particular, ten years are theoretically and practically justified, and as sluggish growth for longer would trend to lower potential growth, a downwards bias would occur. In 2017, human activities still seem far away from equating the marginal productivity of capital and of work. A decade of analysts has consequently envisaged poorer growth prospects, have examined policies to help restore the required demand-side conditions, and have purposely incorporated lower population increments. If the reduction of the quantity adjustment post-crisis is a relative certainty, equilibrium will further rely on a price adjustment. It seems that crucial global imbalances are worsening or, at best, simply halting. Yet, these key data suggest that, in 2017, we would still be quite far away from a necessarily significant equalization of demand and supply.

2. The Role of Economic Policies in Global Development

The different paths of wealth given by economic policies could lead to conclude a direct link between the action of the country and the movement, of easier conception, of the individual factors, that not considering that the great majority of national economies are placed within a global economic system, in which they are coupled by the engine of the international capital market. Economic policies, therefore, do not operate on the genesis of income by consolidating a monopoly of production assets, real factor wealth and strategic distribution processes. Nevertheless, the use of economic policies has produced a situation that within the contemporary economic doctrine of view is ignorant since economic policies have arisen that penalize a significant number of countries by freezing their productive capacities to the benefit of a few states, excluding the always significant phenomenon from the equations of poverty.

The impact of domestic and international economic policies in accelerating or slowing the dynamics of national economies is felt primarily through capital movements, international trade, and the persistence of differences of institutional and socio-economic nature among more or less developed countries. From this point of view, development is seen mainly within the process of accumulation and the accumulation of factors, where economic activities aimed at realizing an increasing stock of capital that can guarantee the well-being of individuals and entire economic systems over time. The opportunity to undertake processes aimed at developing world economies and to differentiate them into more or less developed countries is grasped in different ways depending on the guiding line for economic policies supported by both duration and intensity.

3. Key Economic Policies and Their Effects

Macroeconomic stabilization policies, such as fiscal, monetary, and exchange rate policies, through their effect on output, employment, and prices, tend to affect poverty and human development. High and/or volatile inflation increases poverty, inequality, and reduces economic growth. However, unlike the 1980s and the 1990s when the IMF was profoundly concerned with inflation and fiscal deficits, currently, it is more worried about rapidly retiring expansionary macroeconomic policies, trade protectionism, and addressing the intertwined challenges of financial vulnerability and capital flow reversals, and severe fiscal deficits in most of the world’s nations as a result of the COVID-19 crisis. Monetary and exchange rate policies affect poverty and human development in two ways. The (real) interest rate tends to have a direct effect on poverty and inequality through its effect on investment, growth, and employment. The direct effect of exchange rate depreciation or devaluation on poverty is ambiguous due to their countervailing effects, such as the positive effect on the poor due to the increase in the real wage (conditional on the degree of sectoral shift), the rise in the production of export sectors, and the fall in the consumption of luxury imports, meadows (the J curve of the devaluation may lead to an initial fall) in the real wage and expand trade balances), and the welfare and consumption declines caused by the increase in imported goods prices).

The impact of economic policies, which are at the core of the decision-making of national governments and international organizations, plays a pivotal role in human development. Economic policies include, among others, macroeconomic stabilization, monetary, exchange rate, labor market, trade, environmental, competition, and social policies. The impact of economic policies may vary depending on their “dosis,” “duration,” “strength,” and their “sequence.”

4. Challenges and Criticisms of Economic Policies

The economic policies are criticized and have much lower efficiency than Fisher anticipated, but the reason for such weaknesses is not yet found, since economists could not finally fix economists’ point of view to themselves. In addition to the statement that poverty, originality of needs, and particularly the nature of human work are factors over which humans cannot exert control, and that humans cannot control the harmony of a given country’s economy, cannot be denied. Such a viewpoint represents direct attacks on the economic policy established to govern it. Politically and scientifically, this view is especially interesting as it brings to the fore the immaturity of nations and international institutions to manage human resources. At an economic level, this emphasizes perhaps the place that should be conceded to some specific solutions.

When the ability of a nation to adapt and meet its own needs in massively varied conditions is overlooked, there is a lack of appreciation for the difficulties likely to be faced in achieving a development goal by many countries. Furthermore, historically and even presently, many of the least developed and poorest countries are found in Africa and Asia. In the 1990s, even during the war, one could exclaim that countries in ruins such as Congo and Sierra-Leone have the means to solve a great number of their problems easily. That is the point of a critical view on economic policies. The important issue for most members of the third world is the question of conflict management, peace, safety, human rights, armament reduction, fight against poverty and employment, where one should call multi-state and trans-national companies to order (the trans-nationals do not have a state, and they do fight only for the profit of their shareholders), for sustainable development in rural and urban areas of the third world countries.

5. Conclusion: The Way Forward for Global Economic Development

The chapter has raised the question of the appropriate distance of the social discount and of global altruism. Whereas the policy implications of the insights of the optimum growth theory, the real business cycle approach, and the OLG approach on benevolent policy makers might be quite different, the survey has proven that they are totally equivalent in a world in which the economy operates under concurrence. Taking reluctantly the liberty to doubt, one can think that the results of their theories are robust enough to overcome the most stringent criticisms. Diverse assumptions on the motives of human actions are allowed to provide the reader with sensible economic policy implications to take in the main channels of economic policy: the analysis of intervention via labor market policy, monetary and fiscal policies, open macroeconomic policies, environmental protection, and economic growth policy.

The paper addresses the issues of the potential impact of economic policies on global economic development. It provides a survey of the existing literature in this field in order to show what kind of policy implications can be feasibly drawn and identifies the existing gaps in the literature. This survey has shown that distinct economic policies have different impacts on both prosperity and welfare. The chapter has explained the circumstances in which these differences emerge and it has surveyed the existing literature that has proven the importance of these differentiations. The main conclusion of the survey is that whereas both good economic policies and global development are in principle possible within the existing international framework, the prerequisite is a state of international relations and market failures robust cooperation.