Economic Policy in the Age of Globalisation

, by Nicola Acocella , Translated by Brendan Jones

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ISBN: 9780521540384 | 0521540380
Cover: Paperback
Copyright: 3/28/2005

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In the age of globalisation both domestic and foreign economic policies play an important role in determining firms' strategies. Understanding such policies is an essential part of the cultural background of managers at all levels of a firm. At the same time, firms' choices have a greater impact on economic policymaking in a global economy, as the range of alternatives open to them expands. In this textbook, Professor Acocella analyses both sides of this relationship. Special emphasis is placed on current issues: in policymaking on the basis of social choice principles and the normative and positive theory of economic policy; and issues concerning the establishment of international public institutions that can match the global reach of the private institutions (markets and firms) that generate many of today's economic challenges. Broad in scope, this book is aimed at students who have completed an introductory course in both micro and macroeconomics.

List of boxes

List of tables

xvii

List of symbols, abbreviations and acronyms

xix

Preface

xxv

1 Introduction

(8)

1.1 Economic policy

(2)

1.2 Economic reality and social preferences

(1)

1.3 Outline of the text and organisation of the discipline

(1)

1.4 Summary

(4)

Part I The market, efficiency and equity

2 Market failures: microeconomic aspects

(36)

2.1 The role of the market and government

(1)

2.2 Criteria for the choice of institutions: efficiency and equity

(2)

2.3 Pareto efficiency and competitive equilibrium: the first fundamental theorem of welfare economics

(2)

2.4 Efficiency and equity: the second fundamental theorem

(1)

2.5 Market failures and the first theorem of welfare economics

(1)

2.6 Perfect competition and markets in the real world

(5)

2.6.1 Numerosity of agents and returns to scale

(1)

2.6.2 Free market entry and exit

(3)

2.6.3 The other assumptions of perfect competition

(1)

2.7 Incomplete markets and externalities

(3)

2.8 Externalities and the Coase theorem

(3)

2.9 Public goods

(6)

2.10 Transaction costs and asymmetric information

(3)

2.11 Perfect competition and 'imperfections': the theory of the second best

(3)

2.12 Income distribution and equity

(2)

2.13 Merit wants

(1)

2.14 Dynamic efficiency and market failures

(1)

2.15 Dynamic efficiency and market forms

(1)

2.16 Summary

(2)

3 Market failures: macroeconomic aspects

(44)

3.1 The instability of a capitalist market economy: macroeconomic failures

(1)

3.2 Unemployment

(4)

3.3 Inflation

(4)

3.4 The short-run analysis of unemployment and inflation

(19)

3.4.1 The theory of Keynes and Kalecki

(6)

3.4.2 'Natural' unemployment and the limits of government according to Friedman

(5)

3.4.3 The ineffectiveness of government intervention in new classical macroeconomics

(4)

3.4.4 Some recent theories of involuntary unemployment

(4)

3.5 Growth and development

(3)

3.6 Market failure in growth theories

(4)

3.6.1 The Harrod-Domar growth model

(1)

3.6.2 Neoclassical and post-Keynesian growth models

(1)

3.6.3 Endogenous growth theories

(2)

3.7 The balance of payments

(4)

3.8 Summary

(5)

Part II Normative and positive theory of economic policy

4 The normative theory of economic policy

(27)

4.1 The government as a rational agent

(1)

4.2 Planning

(3)

4.2.1 Meaning and foundation

(1)

4.2.2 The constituent elements of the plan

(1)

4.2.3 An example

(1)

4.3 Economic policy objectives

(7)

4.3.1 Fixed targets

(1)

4.3.2 The priority approach

(1)

4.3.3 Flexible targets: social welfare function with variable MRS

(2)

4.3.4 Flexible targets: social welfare function with constant MRS

(2)

4.4 The instruments of economic policy

(7)

4.4.1 Definition

(1)

4.4.2 The different types of instrument

100

(6)

4.5 The model

106

(4)

4.5.1 The structural form of the model

106

(2)

4.5.2 The reduced form model

108

(2)

4.6 Limits and extensions of the classical approach

110

(1)

4.7 The Lucas critique

111

(3)

4.8 Summary

114

(2)

5 Government failures: elements of a positive theory of economic policy

116

(23)

5.1 Representing social groups

116

(3)

5.2 Agency problems: the objectives of politicians and the political business cycle

119

(4)

5.3 Agency problems: bureaucracy

123

(3)

5.4 Social groups, institutions and economic policy

126

(1)

5.5 Market and 'non-market' failures

127

(3)

5.6 The process of defining government intervention

130

(1)

5.7 The decentralisation of central government functions and the federal state

131

(2)

5.8 Independent authorities

133

(2)

5.9 Summary

135

(4)

Part III Microeconomic policies

6 Property rights, corporate governance and public enterprises

139

(19)

6.1 Introduction

139

(1)

6.2 Making the market work: the minimal state and the attribution of property rights

140

(1)

6.3 Property rights and corporate governance

140

(7)

6.4 Public enterprises and privatisation

147

(8)

6.5 Non-profit institutions

155

(1)

6.6 Summary

156

(2)

7 Competition policies; policies for externalities and public goods

158

(27)

7.1 Competition policy instruments: market liberalisation and international opening

158

(1)

7.2 Regulation

159

(1)

7.3 Regulation and deregulation of entry; regulation of effective competition

160

(3)

7.4 Competition legislation

163

(11)

7.4.1 Foundations and nature

163

(1)

7.4.2 Antitrust legislation in the United States

164

(1)

7.4.3 EU competition legislation

165

(8)

7.4.4 Competition legislation in EU member states

173

(1)

7.4.5 International coordination of national legislation

173

(1)

7.5 Other competition policy instruments; price controls and public enterprises

174

(4)

7.5.1 Price controls

174

(3)

7.5.2 Public enterprises and competition policies

177

(1)

7.6 Externalities, public goods and public policies

178

(5)

7.6.1 Taxation

178

(1)

7.6.2 Incentives for eliminating external diseconomies

179

(1)

7.6.3 Tradable permits to produce diseconomies

180

(1)

7.6.4 Regulation

181

(1)

7.6.5 Financing and producing public goods

182

(1)

7.7 Summary

183

(2)

8 Industrial and regional policies; redistributive policies

185

(24)

8.1 Dynamic efficiency and industrial policies

185

(1)

8.2 The evolution and the tools of post-war industrial policy

186

(3)

8.3 Public demand management policies

189

(4)

8.4 Regional policy

193

(4)

8.5 Redistribution policies and the welfare state

197

(10)

8.6 Summary

207

(2)

9 Social choice and cost-benefit analysis

209

9.1 Choice criteria in private and public projects

209

(5)

9.2 Identifying the effects of a project

214

(1)

9.3 Evaluating the effects

215

(1)

9.4 Shadow prices

216

(3)

9.4.1 Shadow prices in non-competitive markets

217

(1)

9.4.2 Shadow wages

217

(1)

9.4.3 Choosing the social discount rate

218

(1)

9.5 Valuing non-marketed goods

219

(7)

9.5.1 Valuing life

219

(1)

9.5.2 Valuing the environment

220

(5)

9.5.3 Valuing time

225

(1)

9.5.4 Cost-effectiveness

225

(1)

9.6 Summary

226

(5)

Part IV Macroeconomic policies

10 Macroeconomic schemes of analysis in an open economy

231

(18)

10.1 The balance of payments, the foreign exchange market and the exchange rate

231

(6)

10.1.1 The balance of payments and the exchange rate

231

(4)

10.1.2 Foreign exchange transactions

235

(2)

10.2 Theory of the balance of payments

237

(3)

10.2.1 The current account and capital account (movements of goods)

237

(2)

10.2.2 Capital movements

239

(1)

10.2.3 The balance of payments

240

(1)

10.3 International openness, analytical frameworks and economic policy

240

(1)

10.4 The Mundell-Fleming model

241

(5)

10.5 The limitations of the Mundell-Fleming model and ways to overcome them

246

(2)

10.6 Summary

248

(1)

11 Macroeconomic objectives and monetary policy

249

(35)

11.1 Objectives, instruments and models of macroeconomic policy

249

(1)

11.2 The monetary economy

250

(1)

11.3 Financial intermediaries

251

(2)

11.4 Money as a liability of financial intermediaries

253

(2)

11.5 The central bank and monetary base

255

(8)

11.6 Banks and deposits

263

(5)

11.6.1 Banks' balance sheet and the deposit multiplier

263

(5)

11.7 Controlling monetary base and the money supply

268

(4)

11.8 (Final) objectives and agents of monetary policy

272

(2)

11.9 Monetary policy under fixed and floating exchange rates

274

(3)

11.10 The operation of monetary policy; indicators, operative and intermediate targets

277

(3)

11.11 Considerations on the effectiveness of monetary policy

280

(2)

11.12 Summary

282

(2)

12 Macroeconomic objectives and fiscal policy

284

(24)

12.1 The budget and its components

284

(2)

12.2 Income, employment and taxes

286

(4)

12.2.1 Lump-sum taxation

287

(1)

12.2.2 Proportional taxation

287

(1)

12.2.3 Progressive taxation

288

(2)

12.3 Expenditure financing

290

(8)

12.3.1 Balancing the budget

290

(1)

12.3.2 Deficit financing

291

(1)

12.3.3 Monetary base financing

292

(4)

12.3.4 Debt financing

296

(2)

12.4 Fiscal policy under fixed and floating exchange rates

298

(4)

12.5 Public debt

302

(5)

12.5.1 Historical developments in selected countries

302

(1)

12.5.2 The determinants of the growth in public debt

302

(2)

12.5.3 Limits to debt growth

304

(1)

12.5.4 Debt-reduction policies

305

(2)

12.6 Summary

307

(1)

13 Incomes and price policies

308

(13)

13.1 Introduction

308

(1)

13.2 Income distribution, full cost and incomes policy

308

(3)

13.3 Coercion and incomes policies

311

(1)

13.4 Statist policies

311

(2)

13.5 Market-based policies

313

(1)

13.6 Institutional policies

314

(1)

13.7 Incomes policy and productivity policies

315

(1)

13.8 Incomes policy in the real world

315

(5)

13.9 Summary

320

(1)

14 Balance-of-payments policies

321

(22)

14.1 Balance of payments: equilibrium and disequilibrium

321

(1)

14.2 Automatic adjustment mechanisms

322

(2)

14.2.1 Price changes

322

(1)

14.2.2 Income changes

323

(1)

14.3 Adjustment policies and the causes of disequilibrium

324

(1)

14.4 Policies for adjustment of capital movements

325

(3)

14.5 Adjustment policies for excess or insufficient demand

328

(1)

14.6 Policies for competitiveness

328

(1)

14.7 The controllability of the exchange rate

329

(1)

14.8 The effectiveness of exchange rate adjustment

330

(6)

14.8.1 Demand elasticity conditions

330

(2)

14.8.2 The pass-through of exchange rate variations to prices

332

(2)

14.8.3 The elasticity of supply

334

(1)

14.8.4 The effect lag: the j-curve

335

(1)

14.8.5 The effect on capital movements

335

(1)

14.9 The asymmetric effects of a variation in the exchange rate

336

(1)

14.10 Internal and external equilibrium: decentralisation and the appropriate assignment of instruments to targets

337

(4)

14.11 Summary

341

(2)

15 Trade policies: free trade and protectionism

343

(16)

15.1 Trade policies and the foundation of free trade

343

(2)

15.2 Protectionist instruments

345

(1)

15.3 The effects of tariff and non-tariff protection

346

(2)

15.4 Protecting 'infant industries'

348

(3)

15.5 Protection as a tool for improving the terms of trade

351

(1)

15.6 Protection from cheap labour and social dumping

352

(1)

15.7 Protection as an employment policy

353

(1)

15.8 Industrial policies and trade policies

354

(1)

15.9 Summary

355

(4)

Part V Public institutions in an international setting

16 Monetary systems and exchange rate regimes

359

(20)

16.1 Monetary systems

359

(1)

16.2 The Gold Standard

359

(3)

16.3 The Gold Exchange Standard and the International Monetary Fund

362

(3)

16.4 Centrally created reserves

365

(1)

16.5 Floating exchange rates and the evolution of the IMF

366

(5)

16.6 The European Monetary System

371

(5)

16.6.1 Objectives

371

(1)

16.6.2 Objectives and achievements

372

(1)

16.6.3 European Economic and Monetary Union

373

(1)

16.6.4 Nominal and real exchange rates in the European Monetary System

374

(2)

16.7 Fixed versus flexible exchange rates: reflections from experience

376

(1)

16.8 Summary

377

(2)

17 Development and trade organisations

379

(13)

17.1 The system of cooperative institutions created in the post-war period

379

(1)

17.2 The World Bank

380

(2)

17.3 Multilateral governance of trade: GATT and the WTO

382

(5)

17.3.1 GATT

382

(1)

17.3.2 The Uruguay Round

383

(2)

17.3.3 The WTO

385

(2)

17.4 The impact of domestic economic policies and international cooperation on trade

387

(2)

17.4.1 Foreign investment and multinational companies

388

(1)

17.4.2 Environmental policy

388

(1)

17.4.3 Competition policies

388

(1)

17.4.4 Social dumping

389

(1)

17.5 Inequality of starting points among countries and permissive and distortive policies

389

(1)

17.6 Summary

390

(2)

18 Regional public institutions: The European Union

392

(29)

18.1 European integration

392

(1)

18.2 The institutions of the European Union

393

(1)

18.3 The operation of a monetary area

394

(2)

18.4 Monetary policy

396

(10)

18.4.1 Institutions and organs

396

(1)

18.4.2 Tasks, functions and status of the ESCB

397

(1)

18.4.3 Modes of intervention and monetary policy instruments of the ESCB

398

(5)

18.4.4 The structure of the financial sector

403

(1)

18.4.5 Considerations on the monetary policy arrangements of European Monetary Union

404

(2)

18.5 Exchange rate policy

406

(1)

18.6 Fiscal policy

407

(4)

18.7 The structural funds and redistributive policies

411

(1)

18.8 Industrial and trade policies

412

(3)

18.9 Environmental policy

415

(1)

18.10 Summary

416

(5)

Part VI Globalisation and the quest for a new institutional setting

19 The internationalisation of private institutions: the globalisation of markets and production

421

(16)

19.1 Forms of globalisation

421

(5)

19.2 The new features of globalisation

426

(1)

19.3 The causes of globalisation

427

(3)

19.4 The impact of globalisation

430

(1)

19.5 Globalisation and competitiveness

431

(3)

19.6 The consequences of globalisation for economic policy

434

(1)

19.7 Summary

435

(2)

20 The challenges of globalisation for public policies

437

(28)

20.1 International payments imbalances since the 1970's

437

(3)

20.2 The role of capital mobility

440

(6)

20.2.1 Nature and size of international capital movements

440

(4)

20.2.2 Speculative capital movements and currency crises

444

(2)

20.3 The role of international institutions in recent currency crises

446

(2)

20.4 The case for international coordination

448

(12)

20.5 International coordination in formal terms

460

(3)

20.6 International coordination (multilateralism) and regionalism

463

(1)

20.7 Summary

464

(1)

Bibliography

465

(27)

Author index

492

(6)

Subject index

498

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Economic Policy in the Age of Globalisation

Summary

Table of Contents

Supplemental Materials