Macroeconomic Adjustment in Developing Countries: Instability, Short-Run Growth, and External Dependency

Abstract

This paper presents an aggregate model for analyzing macroeconomic adjustment and short-run growth in less-developed countries. The model is built on standard theoretical lines; but an important finding of the paper is that empirically, macroeconomic adjustment in the real sector of some differs from the professional expectations that may be prevalent in more-developed countries. This observation leads us to a reconsideration of the macroeconomics of the developing economies, and particularly of some short-term features that affect the long-run expansion path. The analysis also shows why these economies are often subject to chronic inflation and macroeconmic dependence on foreign-capital inflows. 13 references, 4 tables.