Developing Countries’ Options in a prolonged atypical global slowdown

By Raghbendra Jha, Emeritus Professor, Arndt-Corden Department of Economics, Australian National University

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Despite some obstacles like the crises of the late 1980s and early 1990s, developing economies, the global economy, and international trade experienced steady growth during the period 1980-2000. It was widely claimed that this was partly the result of the adoption of the doctrine of the globalisation by a large majority of developing countries.

However, things changed dramatically with the food price crisis of 2007.  Quantitative restrictions on food exports were imposed by many countries.  At a philosophical level the importance of supply side effects was underscored at a global level.  This realisation was further reinforced by the Global Financial Crisis of 2008-09 when credit collapse on a global scale led to serious supply side impediments to credit growth.  Expansionary fiscal and monetary policies were put together in many countries and the G-20 group of nations was formed to nurse the global economy back to health. However, this led to the massive pile up of debt – both public and private – in many countries and some of them experienced debt crises as a consequence. It was becoming eminently clear that while demand side policies could be put together quickly, this approach had its limitations and attention to the supply side was essential.

With the large-scale dominance of global supply chains addressing supply side shortcomings would require global effort.  That this was in short supply was quickly made clear during the global COVID pandemic of 2020-22. All countries in the world were faced with an economic challenge and a public health challenge that fed on each other.  Addressing one challenge would exacerbate the other.  Reducing the economic challenge by removing lockdowns and allowing people to go to work would spread the virus further and enforcing lockdowns to slow down the progress of the virus would exacerbate the economic crisis. Developing countries were in a particularly vulnerable position since they had a general paucity of resources to meet the economic and public health challenges and had low capacity to produce vaccines and administer these to their populations.

Other supply side constraints developed soon.  Three illustrations of this would suffice. Public Protective Equipment (PPEs) needed to protect health care professionals who were looking after COVID patients were supplied largely by the country from which the virus emerged- China. China needed PPEs for its own needs and quickly cut off supplies to the rest of the world. When the vaccine was finally produced there was widespread hoarding in some developed countries in order to address their own domestic needs. This was self-defeating in a way because in a globalised world new variants of the virus could develop in under vaccinated populations anywhere in the world. Furthermore, there was (and still is) uncertainty about the efficacy of some of these vaccines. Finally, just as the end of the pandemic was in sight, a ferocious European war between Russia and Ukraine has disrupted supply chains the world over, particularly with respect to food and fuel.  This has fed into the inflationary processes in many individual countries as well as globally.   

Under such circumstances, countries started abandoning the idea of global supply chains and started cultivating more limited supply chains with countries they could rely on.  The importance of supply side policies was writ large all over.

This realisation spilled over onto the area of macroeconomic management.  Expansionary fiscal and monetary policies put in place to stimulate economies during the pandemic and inadequate attention to stimulating the supply side led to the build-up of massive excess demand in many countries. The resulting inflation has persisted well after the worst effects of the pandemic are over.  Interest rates have been raised globally to control this inflation with the result that many economies are slowing down and some of them are facing the threat of a recession. Public and private debt have spiralled in most countries.

Against this background, with the developed countries deeply involved in their own economic affairs, not much attention has been paid to the economies of the developing countries. My book Macroeconomics for Development: Prognosis and Prospects has been put together partly to address this paucity. Chapter 1 of the book places the macroeconomic challenges of economic development in context whereas Chapter 2 outlines widely accepted contours of economic development.  Chapter 3 explores the role of finance and institutions in economic development and Chapter 4 discusses the design of monetary policy.  Chapter 5 discusses the design of fiscal policy for economic development and Chapter 6 considers macroeconomic policy design in open economies.  Chapter 7 articulates two versions of the stochastic general equilibrium model of the macroeconomy – the Ramsey model and the overlapping generations model. Chapter 8 examines the consequences of the pandemic for the developing world and Chapter 9 considers how uncommon macroeconomic policy has been designed during the pandemic.  

The novelty of the book lies in presenting the received theory of macroeconomics for development as well as the particular challenges thrown up by the pandemic. As such, the book is likely to be of interest to students in undergraduate and graduate courses in macroeconomics of economic development as well as to other interested readers.   It is written in relatively non-technical language so that it can appeal to students, scholars and general readers alike.

Macroeconomics for Development by Raghbendra Jha, Emeritus Professor of Economics, Arndt-Corden Department of Economics, Australian National University, Australia is out now.

Read the introduction and other free chapters on Elgaronline



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One Comment on “Developing Countries’ Options in a prolonged atypical global slowdown”

  1. Anandi P. Sahu, Professor of Economics, Oakland University Says:

    A well-researched and timely book that combines development strategies and macroeconomics. It provides historical contexts and especially incorporates experience and implications of COVID pandemic.


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