External Liberalization, Economic Performance, and Social Policy
Economic policy in developing and postsocialist economies during the last ten to fifteen years of the 20th century had one dominating theme: wave of external deregulation showing up as packages aimed at liberalizing the balance of payments on both current and capital accounts, along with large but highly volatile foreign capital movements. This chapter draws together recent historical evidence from nine developing and transition economies (Argentina, Colombia, Cuba, India, South Korea, Mexico, Russia, Turkey, and Zimbabwe) to study and assess these changes and their economic and social consequences, summarizing the findings from several perspectives, with findings from Latin America brought in where they add information. It begins with a review of different ways of analyzing liberalization and globalization, and then the basic approach of the country papers and their key results on growth and inequality are presented. These points are elaborated in the form of a simple macroeconomic model that captures the flavor of liberalization on the ground, and an initial application of the model is followed by a review of decomposition exercises for effective demand, employment, productivity growth, and functional income distribution from the country papers; the results of the decompositions and other salient indicators of the effects of liberalization are displayed in a set of tables, which are used to construct country vignettes. Next comes a discussion of the social policy issues emphasized by the country authors, and the chapter closes with a review of open questions regarding macroeconomic and external policy alternatives, and whether social policy can ameliorate the worst effects of globalization and balance of payments deregulation.
Keywords: balance of payments, demand, deregulation, developing countries, economic effects, economic policy, globalization, income distribution, liberalization, productivity, social effects, social policy, transition economies
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