Asian Review of Social Sciences (ARSS)
Constraints in Macroeconomic Policies in Raising Employment
Author : MudaserAhad Bhat and Binish QadriVolume 7 No.1 January-June 2018 pp 1-9
Abstract
Macroeconomic factors such as low inflation, export orientation and low labor taxes help to determine how much employment is created by growth. The relationship between growth and employment is strong and positive which gets enlightened when all macroeconomic policies work in harmony. Indian economy at the time of independence was mainly rural in nature and in a bad state. This was due to the anti-Indian policies of the British Government. The country was engulfed by the vicious circle of poverty and to break this vicious circle Government of India planned in a focused way. The emphasis shifted from agriculture to industry. Also emphasis was laid on increasing role of the state to generate employment and reduce poverty by appropriate macroeconomic policies. However, little was achieved till 1990’s. So the path to long-run economic growth was ensured by introducing New Economic Policy in 1991, which aimed at reducing fiscal deficits, lowering inflation, maintaining exchange rate stability etc. One thing that was obvious was that under New Economic Policy, the public sector will have a diminished role and will be largely limited to social sectors and non-profit making activities unattractive to the private sector. These policy changes affected macroeconomic policies of the government. Despite these policy changes brought under the New Economic Policy, one feature that still remains an important feature of macroeconomic policies in India is that macroeconomic policies still continue to act more as the control devices rather than as development tools. As a result macroeconomic policies fail to generate additional employment. Macroeconomic policies need to be converted into tools for macroeconomic stabilization (Shah, 2008). There are various constraints in macroeconomic policies which refrain them to act as development tools and thereby increase unemployment levels in underdeveloped economies of the world. The present paper attempts to highlight such constraints and suggest remedial measures.
Keywords
Heterogeneity, formalism, overlapping, absence of equi-genetic change, accommodation with assimilation, stretching-the-existing function, leaving-the-one stretching function
Full Text:
References
[1] D. Hilbert., “Grundlagen der Geometrie”, (Foundation of Geometry), Springer, 1913.
[2] Harrod, Roy F., “An Essay in Dynamic Theory”, The Economic Journal. Vol. 49, No. 193, pp. 14–33, 1939.doi:10.2307/2225181.
[3] Domar, Evsey, “Capital Expansion, Rate of Growth, and Employment”, Econometrica, vol. 14, No. 2, pp. 137–147, 1946. doi: 10.2307/1905364.
[4] Muth, J.F., “Rational Expectations and the Theory of Price Movements”, Econometrica, vol. 29, No. 3, pp. 315-335, 1961. Retrieved from http://www.jstor.org/stable/1909635.
[5] Arrow, J. K., “Economic welfare and the allocation of resources for invention”, National Bureau of Economic, Research Princeton University Press. ISBN: 0-87014-304-2, pp. 609 – 626, 1962. Retrieved from http:// www. nber.org/chapters/c2144.pdf
[6] Sargent, Thomas J., and Neil Wallace., “Some Unpleasant Monetarist Arithmetic”, Federal Reserve Bank of Minneapolis Quarterly Review. Vol. 5, No. 1, pp. 1−17, 1981.
[7] Krasner, S.D., “Approaches to the State: Alternative Concepts and Historical Dynamics”, Comparative Politics, vol. 16, No. 2, pp. 223-46, 1984.
[8] Lucas, R.E., “On the mechanics of Economic Development”, Journal of Monetary Economics. Vol. 22 , No.1, 1988.
[9] World Bank, “World Development Report”, Washington D.C, 1988.
[10] Government of India, “Report on the Current Economic Situation and Priority Areas for Action, Ministry of Finance, New Delhi”, 1989.
[11] Blanchard, Olivier Jean; Fischer, Stanley, “The Overlapping Generations Model. Lectures on Macroeconomics”, Cambridge: MIT Press. pp. 91–152, 1989. ISBN 0-262-02283-4.
[12] Daly, Herman., “Elements of Environmental Macroeconomics.Chapter3in Costanza ed.Ecological”, Economics: The Science and Management of Sustainability. New York: Columbia University Press, 1991.
[13] Romer, P.M., “The Origins of Endogenous Growth”, The Journal of Economic Perspectives, Vol. 8, No. 1, pp. 3–22, 1994. Doi:10.1257/jep.8.1.3.
[14] Ramey, Garey, and Valerie A. Ramey, “Cross-Country Evidence on the Link between Volatility and Growth”, American Economic Review, Vol. 85 (December), pp. 1138–51, 1995.
[15] Bagchi, Amaresh, “India’s Fiscal Reform: Some Signposts”, Vol. 28, No. 1, 1998, January-March, Indian Institute of Management, Ahmedabad.
[16] Dow, S. C., “Editorial Introduction to the Formalism in Economics Controversy”, Economic Journal, Vol. 108, No. 451, 1998.
[17] Krusell P, Smith AA., “Income and wealth heterogeneity in the macro economy”, Journal of Political Economy, vol. 106, No. 5, pp. 867–96, 1998.
[18] Easterly, William, and Aart Kraay, , “Small States, Small Problems?” Policy Research Working Paper No. 2139, 1999, Development Research Group (Washington: World Bank).
[19] Ames,B.,Brown.W.,Devarajan,s.,&Izquierdo,A., “Macroeconomic Policy and Poverty Reduction.Washington,DC:International Monetary Fund”, 2001. Retrieved from https:// www.imf.org/external/pubs/ft/exrp/macropol/eng/#ref.
[20] Harris., “Macroeconomic Policy and Sustainability. Global Development And Environment Institute (G-DAE)”, 2001.Working Paper No. 01-09.Retrieved fromhttps://ageconsearch.umn.edu/bitstream/15573/1/wp010009.pdf.
[21] Mayer, Thomas, “Monetary policy: role of”. In Snow don, Brian; Vane, Howard R. An Encyclopedia of Macroeconomics”, Northampton, Massachusetts: Edward Elgar Publishing. pp. 495–99, 2002. ISBN 978-1-84542-180-9.Retrieved from http:// www. Review econ.com/outside-resources.html.
[22] Greif, A., “Institutions. Theory and History”, Forthcoming Cambridge University Press. Chapter 1, 5 and 9.Gokarn, 2003. Keynote Address. The Private Equity International India Forum.
[23] M. Arellano., “Panel Data Econometrics. Chapter 2. Unobserved heterogeneity”, pp. 7-31, 2003. Oxford University Press.
[24] Barro Robert J & Sala-i-Martin, Xavier, “Overlapping Generations Model”, Economic Growth (Second ed.). New York: McGraw-Hill. pp. 190–200, 2004. ISBN 0-262-02553-1.
[25] Chakravarty, Shomit, “Reform of Tax Administration in India _ A Quiet Revolution”, in ADB India Economic Bulletin, October, New Delhi, 2004.
[26] Florensa, C. M., “Institutional Stability and Change. A Logic Sequence for Studying Institutional Dynamics”, Presented at Tenth Biennial Conference of the International Association for the Study of Common Property (IASCP). “The Commons in an Age of GlobalTransition: Challenges, Risks and Opportunities”. Oaxaca, México, 9-13 August, 2004.
[27] Jha, R., “Innovative sources of development finance”, The World Economy. Vol. 27, No. 2, pp. 193-214, 2004.
[28] Downes, P & Stoeckel, A., “Drivers of structural change in the Australian Economy”. Centre for International Economics Canberra & Sydney, 2006. Retrieved from http://www.thecie.com.au/wp-content/uploads/2014/06/MASTER-DITR-26-Feb.pdf.
[29] Spiegel, S., “Macroeconomic and Growth Policies”, New York, 2006.UnitedNations DESA/UNDP.Retrievedfromhttps://www.g24.org/wpcontent/uploads/2016/01/MACROECONOMIC-and-growth-policies.pdf.
[30] Biggeri, M., “Children’s valued capabilities”, In M. Walker & E. Unterhalter (Eds.), Amartya Sen’s capability approach and social justice in education, Chapter 10 , pp. 197–214, 2007. New York: Palgrave.
[31] Chari, V.V. & Kehoe, J.P., “The Heterogeneous State of Modern Macroeconomics: A Reply to Solow”, Federal Reserve Bank of Minneapolis Research Department Staff Report 399, 2007. Retrieved from https://www.minneapolisfed.org/research/sr/sr399.pdf.
[32] Algan, Y., O. Allais & W. J. Den Haan, “Solving Heterogeneous-Agent Models with Parameterized Cross-Sectional Distributions”, Journal of Economic Dynamics and Control, vol. 32, pp. 875 -908, 2008.
[33] Goodwin, N., Nelson, A.J., &Harris, M.J. “Macroeconomic Activity in Context. First edition. Global Development and Environment Institute Tufts University Medford”, MA 02155, 2008. M.E.Sharpe.Retrievedfromhttp://www.ase.tufts.edu/gdae/education_materials/modules/Macroeconomic_Activity_in_Context.pdf.
[34] Shah, A., “New issues in Indian macro policy”, Working Paper 2008-51, 2008. Retrieved from citeseerx.ist.psu.edu/ viewdoc/ download?doi=10.1.1.380.1832&rep=rep1&type=pdf.
[35] Reiter, M., “Solving Heterogeneous-Agent Models by Projection and Perturbation”, Journal of Economic Dynamics and Control, Vol. 33, pp. 649 – 665, 2009.
[36] Price, R., “The Political Economy of Fiscal Consolidation”, OECD Economics Department Working Papers, No. 776, 2010, OECD Publishing, Paris. http:// dx. doi. org/ 10.1787/5kmddq798lls-en
[37] Joya, O., “Macroeconoimc Instabilty in Afghanistan: Causes and Solutions”, Masters dissertation (memoire), 2011.
[38] Nayyar, D., “Rethinking macroeconomic policies for development”, Brazilian Journal of Political Economy. Vol. 31, No. 3 (123), pp. 339-351, 2011.
[39] Mertens, T. M. and K. L. Judd, “Equilibrium existence and approximation for incomplete market models with substantial heterogeneity”, Working Paper, 2012.
[40] Hill, L. Version 1. Factionalism. ANTH 423, Dr. Maximilian Forte, Dept. of Sociology & Anthropology, Concordia University, 2013. Retrieved from https:/ /political anthro. Word press.com/factionalism/
[41] Junankar, N.P., “Is there Trade-off between Employment and Productivity?”, IZA Discussion Paper No. 7717, 2013.
[42] Aziz, J., “What Are Structural Reforms?”, 2013. Retrieved from http://www.pieria. co.uk/articles/what_are_structural_reforms.
[43] Krueger, D., K. Mitman and F. Perri, “On the Distribution of the Welfare Losses of Large Recessions”, Proceedings of the Econometric Society World Congress, 2016.
[44] Ghose, K.A., “Globalization, Growth and Employment in India”, Indian Journal of Human Development. Vol. 10, No. 2, pp. 127-156, 2017.
[45] Stefano Eusepi&Bruce Preston, “Stabilizing Expectations under Monetary and Fiscal Policy Coordination”, Federal Reserve Bank of New York Staff Reports. Staff Report No. 343, September 2008.