Fiscal and monetary policies and problems in developing countries / Éprime Eshag.

Format:

Book

Author/Creator:

Eshag, Eprime.

Series:

Modern Cambridge economics

Modern Cambridge economics.

Language:

English

Subjects (All):

Finance--Developing countries.

Finance.

Developing countries.

Fiscal policy--Developing countries.

Fiscal policy.

Monetary policy--Developing countries.

Monetary policy.

Physical Description:

xxii, 287 pages : illustrations ; 23 cm.

Place of Publication:

Cambridge [Cambridgeshire] ; New York : Cambridge University Press, 1983.

Summary:

This book is concerned with the use of fiscal and monetary policies to overcome three major obstacles to development commonly faced by less developed countries: inadequate investment; misallocation of investment resources; and internal and external imbalances i.e. inflation and balance of payments deficits. The book is divided into six chapters the first two of which are devoted to the definition of concepts and to an explanation of the Keynesian model of income determination and of Kalecki's model of financing investment, within the framework of which the role of fiscal and monetary measures and of foreign capital is examined later. Chapters 3 and 4 discuss the role of fiscal measures and of foreign capital, respectively, in promoting domestic investment, Chapter 5 examines the use of both fiscal and monetary instruments, including industrial and agricultural development banks, to influence the pattern of investment. The last chapter is devoted to the problems of internal and external imbalances.

The author examines policies pursued by a representative sample of developing countries and concludes that most of them fail adequately to exploit the potential of fiscal and monetary instruments and of foreign capital to overcome the three sets of obstacles to development largely because of institutional (socio-political) constraints.

The approach to inflation and balance of payments difficulties followed in the book differs significantly from that of monetarists, notably the Chicago school and the IMF, whose basic propositions are reviewed and critically examined in some detail in Chapters 2 and 6. Although the primary focus of the book is on developing economies, this part of it is also relevant to industrial countries.

Contents:

1 The Meaning and the Strategy of Economic Development 1

The meaning and measurement of economic development 1

The process of growth 3

Economic welfare index 5

Essential and inessential investment and consumer goods 8

Lop-sided development 10

Strategy of development 10

Raison d'etre for government intervention 11

1. Lower efficacy of the market mechanism 11

2. Unequal distribution of income 12

3. Divergence between private and social costs and benefits 15

4. Long-term dynamic considerations 16

Shadow pricing 20

The key role of socio-political factors in development 23

Quality of the administration 24

2 The Scope and Role of Fiscal and Monetary Policies 28

Background to the modern approach 29

The management of demand and production 32

Keynesian model of income determination 36

Fiscal and monetary measures 41

The effect of changes in the supply of money on private demand and on prices 42

Monetary policy and private consumption 44

Monetary policy and private investment 47

Monetary policy and the price level 49

The counter-revolution against Keynes 50

Financing of economic development 53

Kalecki's model 54

Formal model 57

Foreign trade and capital 60

The role of fiscal and monetary policies in development 63

Appendix 2A The neo-monetarist approach 65

The key propositions of monetarism 65

Excess money balances 68

Changes in the supply of money 70

Laissez-faire aspect of neo-monetarism 73

Policy prescriptions 74

3 Financing Economic Development (1) Domestic Savings 77

Public consumption 78

Expenditure on defence, education and health 81

Fiscal policy and private consumption 88

Taxation target and potential 89

Tax ratios 92

Organisation of Petroleum Exporting Countries (OPEC) 97

Guidelines on taxation 100

Essential characteristics of a taxation system 100

Taxation measures 103

Indirect taxes 103

Direct taxes outside agriculture 106

Direct agricultural taxes 109

Land reform and farm co-operatives 118

Wealth, gift and inheritance taxes 120

4 Financing Economic Development (2) Foreign Capital 124

The dual function of foreign capital in development 125

Absorptive capacity for foreign capital 130

Major types of capital flow 131

Economic aid and its cost to donors 132

Volume, composition and distribution of capital flows 136

Composition and distribution of capital 141

Development potential of different categories of external capital 145

Grants and concessional loans (ODA) 145

Tied aid 146

Non-concessional loans 149

Direct investment 151

Drawbacks, compared with loans 153

Special advantages 156

Evaluation of the actual contribution of foreign capital to development 159

Appendix 4A International aid and capital flow targets 162

Recommendations 163

Compliance with recommendations 165

Appendix 4B Growth in external debt of developing countries 167

5 The Pattern of Investment 172

Investment in the public sector 173

Guidelines on the choice of public investment projects 173

Pricing policies in the public sector 175

Private investment 179

Fiscal measures 180

Tariffs and quotas 180

Tax concessions 182

Subsidies 183

Multiple exchange rates 184

Monetary instruments 186

Industrial development banks 188

Sources of funds 189

Investment policies 193

Agricultural credit institutions 196

Development potential 197

Distribution of institutional credit 201

Subsidised credit 207

6 Internal and External Equilibrium 211

The meaning and significance of equilibrium 211

Internal equilibrium 211

External equilibrium 213

Causes of disequilibrium 216

The structure of production 218

Supply of food 218

Production bottlenecks and sectoral demand pressures 221

Size of harvests 222

The structure of foreign trade 222

Diagnosis of imbalances 227

Analysis of demand conditions 228

Inflationary pressures 231

External imbalances 234

Remedies for imbalances 236

Direct controls and selective measures 237

Global deflationary measures 239

Foreign loans 241

The IMF monetary approach to the balance of payments 243

The basic propositions of monetarism 244

IMF edecticism 247

The organisation, resources and credit facilities of the IMF 252

The organisation and resources of the IMF 253

Quotas and SDRs 253

The IMF regular credit facilities 256

Conditionality of the IMF credit facilities 257

IMF stabilisation policies 259

Restriction of effective demand 260

Promotion of the market mechanism 262

Foreign exchanges and devaluation 263

Appendix 6A IMF special facilities 269

Compensatory Financing Facility (CFF) 270

The Buffer Stock Financing Facility 272

The Oil Facility 272

Extended Fund Facility (EFF) 273

Supplementary Financing Facility (SFF) 273

The Trust Fund 275

General Arrangements to Borrow (GAB) 275.

Notes:

Includes bibliographical references and index.

ISBN:

0521249007

OCLC:

8845577