Developmental Macroeconomics

Recently launched ESCAP’s Economic and Social Survey of Asia and the Pacific 2013 argues for a shift in macroeconomic policy paradigm. Historically, macroeconomic policies have both stabilization and development roles. Since the 1980s the focus of macroeconomic policies shifted to stabilization alone. It is assumed that low single digit inflation and low or no budget deficits are both necessary and sufficient conditions for growth and development. However, while reviewing the lessons of such policy focus, the World Bank observed: “Macroeconomic policies improved in a majority of developing countries in the 1990s, but the expected growth benefits failed to materialize, at least to the extent that many observers had forecast.”1 In the Asia-Pacific region, such restrictive macroeconomic policies aimed at stabilization in a very narrow sense have seen drastic declines in public infrastructure investment, especially in agriculture, and a rise in economic insecurity. The region was also hit by the worst financial crisis in 1997 despite reasonable macroeconomic stability. In light of the huge developmental challenges of Asia and the Pacific associated with the region’s high degree of economic insecurity, large development gaps, significant infrastructure shortages and unsustainable environmental impacts, there is clearly a need to balance stabilization and developmental roles of macroeconomic policies.