 Course: The New Structural Economics and Policy Design

 Instructor: Prof. Justin Yifu Lin

 Date: October 25, 2023

GROUP 4

Name ID No. Nationality

Jia Nan 2301120028 China

Cain Bure 2301112554 Zimbabwe

Mpotsang Perfect 2301112568 Botswana

Moges Bayabl 2301213899 Ethiopian

New Structural Economics: what will be done
differently?
A framework for rethinking development

 I. Topics in the Readings

 II. Main Arguments Presented
 III. Take-aways
 IV. Questions for Further Discussion
 I. Topics in the Reading

 Key policy differences & similarities among old structural economics,

neoclassical economics, and new structural economics on ：
 fiscal policy
 monetary issues
 public revenue management in resource-rich contries
 financial-sector development
 trade
 human development
 II. Main Arguments Presented
fiscalpolicy
(Keynesian idea)Governments should
use tax and expenditure policies to
Old Structural offset business cycles in the economy.
Economics Government intervention should
promoted demand at a macro level and
fight high unemployment and deflation.
In an economy in which money creation
is restrained, a well-functioning price
Neoclassical Economics
mechanism should lead to a general
tendency toward equilibrium.
Countercyclical policy is the
appropriate fiscal strategy for
developing countries. Because:
1.investments boost short-term demand
and promote long-term growth. 2. their
New Structural
cost is lower than in normal times. 3.
Economics
Rcardian equivalence trap can be
avoided because the increase in future
growth rates and fiscal revenues can
compensate for the cost of the
investments.
monetary issues
Monetary policy should be placed under
government control, directed at
influencing interest rates and sextor
credit allocation
Monetary policy’s main goal is to keep
price stable, avoiding both prolonged
inflation and deflation.
In developed countries, monetary plicy is
oftern ineffective for stimulating private
investment and consumption in
recessions and excess capacity situations.
In developing countries, interest-rate
should be used as a counter-cyclical tool
and as an instrument to encourage
infrastructure and industrial upgrading
investments during recessions. Monetary
policy can be used not only
countercyclically to stabilize the
economy but also strategically to foster
structural transformation and contribute
to their enrichment.
public revenue management in
resource-rich countries
In developing countries, management of
revenue from natural resources should
be taken as an important aspect of the
strategy to address the imbalances
between them and the rich economies.
【 excessive and misguided government
interventions: tax, regulate, subsidize 】
Main goals of resource management is
to save a substantial portion of revenue
from natural resources(deposited in a
seperate central bank account or trust
fund, held in foreign currency, for future
generations), and use only a small
fraction of it for current consumption.
【 But saving money has never been
enough to ensure continuing success and
sustained growth. 】
An appropriate share of revenues from
commodities should be used to invest in
human, infrastructure, and social capital
and provide incentives for developing
manufacturing industries consistent with
their comparative advantages to
facilitate industrial diversification and
upgrading. The projects stimulate new
manufacturing industries, diversify the
economy, provide jobs, and offer the
potential of continual upgrading.
financial-sector development
In underdeveloped economies, the inability of the
financial sector to mobilize funding for investment
is resulting from widespread market failures that
could not be overcome by market forces alone.
Governments should mobilize savings, and allocate
credit to support the development of advanced
capital-intensive industries.
Advocate financial liberalization: a well-defined
system of property rights, good contractual
institutions, and competition would create the
conditions for the emergence of a sound financial
system. Bureaucrats generally do not have the
incentives or expertise to intervene effectively in
credit allocation and pricing. Government should
exit bank ownership and lift restrictions on
allocating credit and determining interest rates.
Appropriate financial structure at a given level of
development should be determined by the prevailing
industrial structure, the average size of firms, and
the typical risk they face.In the early stage of a
country’s development: informal moneylenders and
small local banks, providing small loans and having
information advantages over their borrowers, with
whom they maintain regular and even intimate
contact.When economy grows and its endowment
structure changes: industries and farms are upgraded
to more capitalintensive ones, financial institutions
should include larger national banks or equity
markets, which have the ability to mobilize large
amounts of funds and spread risks.
foreign capital
Foreign capital mainly as a
tool of industrialized countries
and their multinational firms to
maintain harmful control over
developing
countries.Advocating tight
restrictions on almost all forms
of international financial lows.
Favors open or liberalized
capital markets, with the
expectation of more efficient
allocation of savings, increased
possibilities for diversiication
of investment risk, faster
growth, and the dampening of
business cycles.
FDI is a more favorable source
of foreign capital for
developing countries than
other capital flows because it is
usually targeted toward
industries consistent with a
country’s comparative
advantage.
trade
Priorityshouldbe given to import
substitution strategies, with
developing economies closed and
protected until they can compete
with advanced industrialized
countries in world markets.
Recommendstrade liberalization
and export promotion to generate
foreign exchange through export
earnings.
Exports and imports are
endogenous to the comparative
advantage determined by a
country’s endowment structure.
Openness is an essential channel
for convergence.A gradualist
approach to trade liberalization
helps achieve growth objectives
without incurring heavy losses in
the transition.
human development
Said little about the role of human
development in economic growth.
Investments in education, training,
and health,most important forhuman
capital, are considered the most
important driving force for
economic development.
Human capital isone component of
a country’s endowments.Human
capital’s formation requires a long
gestation.In a dynamic, growing
economy it is important to plan
ahead and make human
capitalinvestments before the
economy requires the set of skills
associated with new industries and
technologies. But improvements in
human capital should be
commensurable with the
accumulation of physical capital and
the upgrading of industry in the
economy.A well-designed policy for
human capital development should
be integral to any country’s overall
development strategy.Development
strategies should include measures
to invest in human capital that
facilitate the upgrading of industries
and prepare the economy to make
full use of its resources.
III. Take-aways
 From the perspective of the NSE theory:
The NSE applies the neoclassical approach to study issues in economic development related to:
• the nature and determinants of economic structures and
• their patterns of change in the process of economic development

The NSE is based on following ideas:

• structure of factor endowments evolves from one level of development to another;
• each level of economic development is a point along the continuum from a low-income agrarian economy to a high-income post-
industrialized economy;
• market is the basic mechanism for effective resource allocation; government should play an active role in facilitating structural
changes.

 From the perspective of methodology of academic study:

• examine the evolution of thinkings;
• make critical review of main schools of thought;
• outline basic principles and conceptual framework;
• propose implementation framework and suggestions.
IV. Questions for Further Discussion

 For an underdeveloped economy with limited education budget, which area and level
of human capital development should be prioritied?
 For an emerging economy with comparatively limited budget for education, which
area and level of education should be given priority, the ECCE or HE?
Thank you!