Working Papers

Economic diversification is very relevant for poorer developing countries to create jobs and foster economic development. That need has been recognized in key internationally agreed development goals. The empirical economic literature has identified several stylized facts about the pattern of diversification of economies, but the development of explanations for those patterns in general has been only loosely associated with economic theory on growth, trade, technology change and structural transformation. Making that connection is relevant because it could inform policymakers in developing countries in designing and implementing policies for promoting diversification. This paper presents…

This paper assesses the effects of combining fiscal austerity with flexibilization policies aimed at reducing labour costs and increasing competitiveness. Core to our analysis is a global perspective where the aggregation problem is fully taken into account. We derive a stylized macroeconomic framework of distributive and demand dynamics. We show that even in export-led regimes, after considering global feedbacks, flexibilization policies do not lead to higher income and employment. Rather, the end result is contractionary. Over time, the world economy is essentially wage-led and responds positively to coordinated Keynesian stimuli.