Macroeconomic Theory and Policy essay

How has Globalization been a force for change in the modern world? Professor Amit Bhaduri in his article “ The Impact of Globalization on Macroeconomic Theory and Policy focuses on the effects of Globalization on the financial and political interests of various interest groups (Bhaduri, Amit. 2005). He demonstrates how the globalization process has nurtured the interest of the dominant interest and increased its influence on the macroeconomic policies leading to an exploitation of the labor class.

He distinguishes the current process of globalization because the current process is not simply a trade in goods and services but a trade in financial assets in the foreign exchange market through a variety of credit products. He points to the phenomenal increase in foreign exchange trade that takes place daily and also points out the increasing importance of private financial traders in the market (Bhaduri, Amit. 2005). He emphasizes that the increase in free trade means that the external market has become more important than the internal market in several countries.

The companies strive to increase their export earnings rather than focus on internal demand. These companies endeavor to reduce their costs through wage reductions on one hand and increasing labor productivity on the other (Bhaduri, Amit. 2005). Macroeconomic theory emphasizes there is a reduction of the internal market and an increase in the export market. The end result is an increase of inequalities. Macroeconomic theory says that wage reduction decreases internal consumption by wage earners on one hand and on the other hand increases labor productivity by reducing the labor and restructuring of companies.

These two effects that is reduction in wages and downsizing offset any benefits that may emerge from increased exports and investment. Globalization affects the government policy so that its endeavors to stimulate employment by using inflationary deficit financing are ruled out because they tend to adversely affect financial markets. In the same way easy monetary policies that may increase employment are avoided because it may hurt the balance of payments accounts. Stimulation of consumption demand is also partial to the upper class.

This occurs in the form of tax cuts for the rich. Similarly, the monetary policy favors the stock markets so that they remain bullish. In short the policy of cost reduction during globalization leads to greater efficiency on the level of companies rather than on the economy. The macroeconomic outlook turns inefficient because of deep unemployment. In Gender And Globalization: A Macroeconomic Perspective by Nilufer Cagatay and Korkut Erturk point out how globalization is a force for an increase in unequal gender relations.

Globalization and free trade policies of nations adversely affect gender-differentiation, increase gender inequalities and enervate the policies of governments and social organizations that are designed to improve gender inequality emanating from macroeconomic policies (Cagatay, Nilufer & Erturk, Korkurk 2004). The assumption made by the proponents of globalization is that with increase in consumption, there would be a larger number of people who would cross over from indigence to non indigence and that the benefits of growth would percolate to the indigent and to all household members equally.

These assumptions are incorrect as macroeconomic theory affirms that the trickle down process is very slow, does not benefit every member of the family equally and in particular does not bring equal benefit to the girls and women. In addition, gender relations play an important role in determining how much women earn in comparison with men and globalization has led to adverse gender relations leading to longer working hours, lower education, wealth and lower earnings for women (Cagatay, Nilufer & Erturk, Korkurk 2004).

Every economic policy has assured employment and income security for the male. The policies dictated by the IMF and the World Bank have always stressed the need to liberalize their capital account and free capital flow and so reward those countries that improve their external payments position (Cagatay, Nilufer & Erturk, Korkurk 2004). The result of the neo-liberalization is that there is growth in the country but at the same time there is an increase in poverty and an increase in inequalities. Globalization has been a force for the failure of the current pro-poor growth policies.

Macroeconomic theory affirms that control of fiscal expenditure by governments; liberalization policies have drastically reduced the social protection gap leaving women more vulnerable. In short globalization has led to discrepancies in access to assets, learning, work and income generation. In the article “Waiting For Macroeconomic Stability” by Haluk Tukel, the author examines how globalization has been a force for the structural reforms that Turkey underwent to liberalize its domestic financial markets and foreign trade under the pressures of globalization.

However, bowing to political pressures, the country gave up its macroeconomic reforms and this led to severe mismanagement (Tukel, H 1997). Globalization has been a force for severe inflation and outflow of capital from the country. In case Turkey wants to break the vicious circle of inflation, public deficits and currency behavior, macroeconomic theory asserts that it has to improve its tax system, realization of taxes, restructure and privatize public enterprises, reform its social security system.

Macroeconomic theory says that if Turkey does not break its vicious circle, its economy and banking system are likely to get enervated because of strong capital outflows (Tukel, H 1997). To avoid this deleterious effect of globalization, Turkey must combine its policies, have an autonomous central bank and have financial consolidation.


Bhaduri, Amit. (2005) “The Impact of Globalization on Macroeconomic Theory and Policy”. Retrieved on November 12, 2006 from: http://www. tzw. biz/pdf/Bhaduri_1. pdf Cagatay, Nilufer & Erturk, Korkurk (2004) “Gender And Globalization: A Macroeconomic Perspective” Retrieved on November 12, 2006 from: http://www. ilo. org/public/english/bureau/integration/download/publicat/4_3_204_wcsdg-wp-19. pdf Tukel, H (1997) “Waiting For Macroeconomic Stability” Retrieved on November 12, 2006 from: http://www. tusiad. org. tr/yayin/private/autumn97/html/tukel. html