Developmental macroeconomics: The critical role of public expenditure

Macroeconomic policies in successful developing countries primarily focused on economic growth, subject to the constraint that inflation remained tolerable and that the balance of payments remained manageable. However, the breakdown of the Bretton Woods system of fixed exchange rates and the oil price shocks in the 1970s and the subsequent debt crisis in Latin America provoked a shift in macroeconomic policy and the role of the State in which managing public finances and keeping inflation under check were considered both a necessary and sufficient condition for growth and for achieving poverty reduction. However, this has led to neglect of the developmental role of macroeconomic policies.

Related Subject(s): Economic and Social Development