Macroeconomic Policy Issues in Fragile States

Abstract

Around half of the world population living in extreme poverty resides in fragile states. The objective of this book is to develop our understanding of how state fragility must be accounted for in the design of macroeconomic policy. This chapter introduces the volume by presenting the concept of state fragility and by explaining how the macroeconomies of fragile states differ from those of other developing economies. The chapter also proposes a framework to illustrate how the poverty trap and the fragility trap interact, leveraging on the existing literature as well as on the new contributions presented in this volume. Finally, the chapter extracts policy lessons from the other 19 chapters in the book, in three increasingly specific steps: (1) General principles for policy engagement, (2) Policies to escape fragility, and (3) Macroeconomic policies to manage fragile economies, in particular in the areas of fiscal policy, monetary policy, and financial development.