Economic Adjustment and Growth: Theory and Practice

Description

This book focuses on conceptualizing the process of economic adjustment and growth, and testing it with empirical methods. The critical components of a successful economic growth strategy include physical, financial, and educational infrastructures supported by macro-financial stabilization policies and structural reforms. With this in mind, the authors begin with a review of the neoclassical growth model, before delving into more specialized topics such as endogenous growth, adaptive inflationary expectations, learning by doing, optimal saving, and sustainable foreign debt. The final chapter presents Philippines as a case study, and narrates the evolution of a successful strategy of adjustment and growth practiced by an emerging market economy that had shown stellar pre-pandemic growth performance, low and stable inflation, and a sustainable external current account position. Contents Foreword Acknowledgments About the Authors Introduction and Overview References 1. The Basic Neoclassical Growth Model: A Review References 2. Testing the Neoclassical Theory of Economic Growth: A Panel Data Approach 2.1 The Model 2.1.1 The Steady State 2.1.2 Dynamics Around the Steady State 2.2 Panel Data Estimation 2.3 Data and Results 2.4 Concluding Remarks Appendix 2.A: Data Sources, Definitions, and the Sample of Countries References 3. A Modified Neoclassical Growth Model with Endogenous Labor Participation 3.1 Introduction 3.2 The Modified Growth Model 3.2.1 Discussion 3.2.2 Reduced Model 3.3 Comparative Dynamics 3.3.1 The Growth Effects of a Higher Saving Rate 3.3.2 The Growth Effects of an Increase in Technical Change 3.3.3 The Growth Effects of a Decline in Labor Participation 3.4 Related Issues 3.5 Conclusion References 4. Capital and Growth 4.1 Introduction 4.2 A Neoclassical Model of Capital and Growth 4.2.1 Reduced Model 4.2.2 Stability of Equilibrium and Growth Dynamics 4.2.3 Comparative Dynamics 4.3 Optimal Saving Rate 4.4 Summary and Conclusion Appendix 4.A: Derivation of the Key Innovation of DV Model References 5. Finance and Endogenous Growth 5.1 Introduction 5.2 The Growth Model 5.3 Reduced Model 5.4 Short-Run and Long-Run Growth Effects of a Decline in Financial Flows 5.5 Other Comparative Dynamics 5.6 Conclusion References 6. Openness, Human Development, and Fiscal Policies 6.1 Endogenous Growth 6.1.1 Reduced Model 6.1.2 Stability 6.1.3 Equilibrium Capital Intensity and Growth 6.1.4 Comparative Dynamics 6.1.4.1 Effects of a Higher Saving Rate 6.1.4.2 Effects of Openness, Human Development Spending, and Technical Change 6.1.4.3 Effects of Fiscal Deficits and Population Growth 6.2 Optimal Long-Run Growth 6.3 The Speed of Adjustment Toward Equilibrium 6.3.1 Analytical Approach 6.3.2 Simulation 6.3.3 Empirical Approach 6.4 Summary and Conclusions Appendix 6.A: Data Used in the Study List of Countries Appendix 6.B23: The Endogenous Growth Model in a Ramsey Framework 6.B.1 The Model 6.B.2 The Reduced Model 6.B.3 Optimal Saving Rate 6.B.4 The Speed of Adjustment to Equilibrium 6.B.5 Conclusion References 7. Does Monetary Policy Matter for Long-Run Growth? 7.1 Introduction 7.2 The Modified Model 7.3 The Effects of Disinflation 7.4 Optimal Monetary Policy and Optimal Long-Run Growth 7.5 The Speed of Adjustment to Long-Run Equilibrium 7.6 Summary and Conclusions Appendix 7.A: The Reduced Model and Stability Analysis References 8. Outward-Oriented Trade Policies and Economic Growth 8.1 Introduction 8.2 The Growth Model 8.2.1 The Standard vs. Modified Models: An Overview 8.2.2 A Two-Sector Modified Model 8.2.2.1 Equilibrium Behavior 8.2.2.2 The Dynamic Effects of Exports on Economic Growth 8.2.2.3 Some Extensions 8.3 Optimal Saving 8.4 Summary and Conclusions References 9. External Debt, Adjustment, and Growth 9.1 Introduction 9.2 The Formal Framework 9.2.1 Brief Survey of the Literature 9.2.2 The Extended Model 9.2.3 The Reduced Model 9.2.4 Restrictions on External Financing 9.2.5 Optimal Growth 9.3 Application to the Philippines 9.4 Implications for Fiscal Policy and External Debt Management 9.5 Summary and Conclusions Appendix 9.A: Stability Analysis Appendix 9.B: Data 9.B.1 Definitions 9.B.2 Data Sources 9.B.3 Sample Period 9.B.4 Software Used References 10. Optimal Saving and Sustainable Foreign Debt 10.1 Introduction 10.2 A Brief Survey of the Literature 10.3 The VM2 Model 10.4 Comparative Dynamics 10.5 Optimal Saving and Sustainable Foreign Debt 10.6 Concluding Remarks References 11. Economic Adjustment and Growth: A Summing Up References 12. Stabilization Policies and Structural Reforms: The Philippine Case 12.1 Introduction 12.2 Structural Reforms in the Philippines and the Role of the IMF 12.2.1 Protectionism in the 1950s to 1980s 12.2.2 Liberalization in the 1990s to Present: The Role of the IMF3 12.3 The Impact of Reforms on the Philippine Economy 12.3.1 Solid Macroeconomic Fundamentals 12.3.2 Automatic Stabilizer 12.3.3 Credit Rating Upgrades 12.4 The Pandemic and Policy Lessons 12.4.1 Managing Elevated Level of External Debt 12.4.2 Maintaining Monetary and Fiscal Spaces 12.4.3 Adopting Investment-Led Growth Strategy 12.5 Conclusion References Index