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Promoting an effective market economy in a changing world

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  • Willem H. Buiter
  • Richard Lago
  • Nicholas Stern

Abstract

In this paper we examine the main challenges in promoting an effective market economy. While the paper ranges widely across the spectrum of economic institutions and policies, the central theme is the importance of macroeconomic stability for economic growth in the medium and long run. Macroeconomic stability may be seen as a public good. Its provision is among the essential responsibilities of the state both in modern market economies and in economies transforming themselves into modern market economies. Following this brief introduction, Section II considers four key aspects of the economic environment of the coming decades: increasing internationalisation; market-orientation; diminished government role; high real interest rates. Section III reviews the reasons why macroeconomic stability matters for economic performance and summarises the key empirical evidence supporting the existence of a causal link. Section IV deals with the design of domestic and international policies and institutions to promote macroeconomic stability and Section V asks how national governments and international institutions can take advantage of the current relatively stable global macroeconomic environment to improve medium-term economic performance and promote long-term growth. Section VI concludes. While our discussion will range broadly both theoretically and empirically, we shall emphasise lessons for, and experience from, countries attempting to create a market economy.

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File URL: http://eprints.lse.ac.uk/3740/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 3740.

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Length: 109 pages
Date of creation: Mar 1997
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Handle: RePEc:ehl:lserod:3740

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