Political Feasibility and Investment in Economic Transformations
IMF Working Papers, July 1, 1993
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- Political Feasibility and Investment in Economic Transformations
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Bibliographic details
- Authors: Peter Isard, Joshua Aizenman
- Published: July 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451967289.001
Analytical framework
- Feasibility of economic transformation requires the simultaneous attainment of:
- Macroeconomic stability, defined as fiscal balance.
- Political support, related to the income gains and losses of different population groups.
- Adequate private investment, which is linked to public “infrastructure” investment.
- The analysis emphasizes interactions among fiscal policy, distributional effects across population groups, and public infrastructure’s role in mobilizing private investment.
- Productivity gains arise when workers are induced to make occupational choices consistent with their comparative advantages.
Key findings
- Successful economic transformation depends on meeting multiple requirements concurrently (macroeconomic stability, political feasibility, and private investment).
- Public “infrastructure” investment is a crucial determinant of private investment levels.
- Political feasibility hinges on the distributional income effects of transformation policies across different population groups.
- Achieving the simultaneous requirements may necessitate a “big push” involving external financial and technical assistance.
- Inducing occupational choices aligned with comparative advantage yields important productivity gains.
Policy implications and recommendations
- Ensure fiscal balance to maintain macroeconomic stability as a foundation for transformation efforts.
- Design transformation policies with explicit attention to the income gains and losses across population groups to build political support.
- Use public infrastructure investment strategically to catalyze adequate private investment.
- Consider coordinated external financial and technical assistance—a “big push”—when domestic resources and political conditions alone are insufficient to attain simultaneous requirements.
- Implement policies that facilitate workers’ movement toward occupations consistent with their comparative advantages to capture productivity improvements.
Source: Political Feasibility and Investment in Economic Transformations, Peter Isard and Joshua Aizenman.