This book focuses on conceptualizing the process of economic adjustment and growth, and testing it with empirical methods. The critical components of a successful economic growth strategy include physical, financial, and educational infrastructures supported by macro-financial stabilization policies and structural reforms. With this in mind, the authors begin with a review of the neoclassical growth model, before delving into more specialized topics such as endogenous growth, adaptive inflationary expectations, learning by doing, optimal saving, and sustainable foreign debt. The final chapter presents Philippines as a case study, and narrates the evolution of a successful strategy of adjustment and growth practiced by an emerging market economy that had shown stellar pre-pandemic growth performance, low and stable inflation, and a sustainable external current account position.
Author(s): Delano S. Villanueva, Robert S. Mariano, Diwa C. Guinigundo
Publisher: World Scientific Publishing
Year: 2023
Language: English
Pages: 376
City: Singapore
Contents
Foreword
Acknowledgments
About the Authors
Introduction and Overview
References
1. The Basic Neoclassical Growth Model: A Review
References
2. Testing the Neoclassical Theory of Economic Growth: A Panel Data Approach
2.1 The Model
2.1.1 The Steady State
2.1.2 Dynamics Around the Steady State
2.2 Panel Data Estimation
2.3 Data and Results
2.4 Concluding Remarks
Appendix 2.A: Data Sources, Definitions, and the Sample of Countries
References
3. A Modified Neoclassical Growth Model with Endogenous Labor Participation
3.1 Introduction
3.2 The Modified Growth Model
3.2.1 Discussion
3.2.2 Reduced Model
3.3 Comparative Dynamics
3.3.1 The Growth Effects of a Higher Saving Rate
3.3.2 The Growth Effects of an Increase in Technical Change
3.3.3 The Growth Effects of a Decline in Labor Participation
3.4 Related Issues
3.5 Conclusion
References
4. Capital and Growth
4.1 Introduction
4.2 A Neoclassical Model of Capital and Growth
4.2.1 Reduced Model
4.2.2 Stability of Equilibrium and Growth Dynamics
4.2.3 Comparative Dynamics
4.3 Optimal Saving Rate
4.4 Summary and Conclusion
Appendix 4.A: Derivation of the Key Innovation of DV Model
References
5. Finance and Endogenous Growth
5.1 Introduction
5.2 The Growth Model
5.3 Reduced Model
5.4 Short-Run and Long-Run Growth Effects of a Decline in Financial Flows
5.5 Other Comparative Dynamics
5.6 Conclusion
References
6. Openness, Human Development, and Fiscal Policies
6.1 Endogenous Growth
6.1.1 Reduced Model
6.1.2 Stability
6.1.3 Equilibrium Capital Intensity and Growth
6.1.4 Comparative Dynamics
6.1.4.1 Effects of a Higher Saving Rate
6.1.4.2 Effects of Openness, Human Development Spending, and Technical Change
6.1.4.3 Effects of Fiscal Deficits and Population Growth
6.2 Optimal Long-Run Growth
6.3 The Speed of Adjustment Toward Equilibrium
6.3.1 Analytical Approach
6.3.2 Simulation
6.3.3 Empirical Approach
6.4 Summary and Conclusions
Appendix 6.A: Data Used in the Study
List of Countries
Appendix 6.B23: The Endogenous Growth Model in a Ramsey Framework
6.B.1 The Model
6.B.2 The Reduced Model
6.B.3 Optimal Saving Rate
6.B.4 The Speed of Adjustment to Equilibrium
6.B.5 Conclusion
References
7. Does Monetary Policy Matter for Long-Run Growth?
7.1 Introduction
7.2 The Modified Model
7.3 The Effects of Disinflation
7.4 Optimal Monetary Policy and Optimal Long-Run Growth
7.5 The Speed of Adjustment to Long-Run Equilibrium
7.6 Summary and Conclusions
Appendix 7.A: The Reduced Model and Stability Analysis
References
8. Outward-Oriented Trade Policies and Economic Growth
8.1 Introduction
8.2 The Growth Model
8.2.1 The Standard vs. Modified Models: An Overview
8.2.2 A Two-Sector Modified Model
8.2.2.1 Equilibrium Behavior
8.2.2.2 The Dynamic Effects of Exports on Economic Growth
8.2.2.3 Some Extensions
8.3 Optimal Saving
8.4 Summary and Conclusions
References
9. External Debt, Adjustment, and Growth
9.1 Introduction
9.2 The Formal Framework
9.2.1 Brief Survey of the Literature
9.2.2 The Extended Model
9.2.3 The Reduced Model
9.2.4 Restrictions on External Financing
9.2.5 Optimal Growth
9.3 Application to the Philippines
9.4 Implications for Fiscal Policy and External Debt Management
9.5 Summary and Conclusions
Appendix 9.A: Stability Analysis
Appendix 9.B: Data
9.B.1 Definitions
9.B.2 Data Sources
9.B.3 Sample Period
9.B.4 Software Used
References
10. Optimal Saving and Sustainable Foreign Debt
10.1 Introduction
10.2 A Brief Survey of the Literature
10.3 The VM2 Model
10.4 Comparative Dynamics
10.5 Optimal Saving and Sustainable Foreign Debt
10.6 Concluding Remarks
References
11. Economic Adjustment and Growth: A Summing Up
References
12. Stabilization Policies and Structural Reforms: The Philippine Case
12.1 Introduction
12.2 Structural Reforms in the Philippines and the Role of the IMF
12.2.1 Protectionism in the 1950s to 1980s
12.2.2 Liberalization in the 1990s to Present: The Role of the IMF3
12.3 The Impact of Reforms on the Philippine Economy
12.3.1 Solid Macroeconomic Fundamentals
12.3.2 Automatic Stabilizer
12.3.3 Credit Rating Upgrades
12.4 The Pandemic and Policy Lessons
12.4.1 Managing Elevated Level of External Debt
12.4.2 Maintaining Monetary and Fiscal Spaces
12.4.3 Adopting Investment-Led Growth Strategy
12.5 Conclusion
References
Index
