Macroeconomic Policy Coordination

Many countries dream of becoming economic leaders in the world; this necessitates the need to integrate the economies in a bid to increase the possibilities of better economic standings. Many countries have banked on the need for interdependence and thus opted for coordination of macroeconomics (Maruping, para.3). This coordination however is subject to many challenges in view of the fact that every country or region has different interests and feature that are brought to the negotiation table. Having a balanced region that will further each region or country without exploitation is a great challenge but if it is dealt with appropriately then there are numerous benefits to enjoy. This paper critically examines whether macro economic policy coordination works, it gives the pros and cons of macroeconomics and gives examples of regional blocks that have applied this policies.

Regional Integration

Africa has been projected to be an emerging market and many developed countries have been advancing trade and economic ties where they have had economic ties. Countries like China have been investing heavily in the African region in its bid to become a super economy (Maruping, para.5). It is evident that regional integration is worked out well with the best policies can lead to success however there are other hidden factors that affect the cooperation. For effectiveness to be achieved in macroeconomics coordination there must be comprehensive tax policies, monetary policies, employment policies and budgetary policies that govern the member states.

Different regional blocks such as the European Union (EU), Central American Common Market (CACM), North American Free Trade Area (NAFTA), Latin American Integration Association (LAIA) and the Caribbean Community (CARICOM) have had these policies in order and thus reaped the benefits (Issing, p.346). This makes whatever happening to one country affect the other where the degree of coordination will be identified though trade and financial ties between all the parties involved. The major goal of the integration is the merging the economy in all aspects and ensure a mutual agreement.

The integration may take different ideas such as a preferential trade area PTA, a free trade area FTA, a customs union, a common market, or an economic community. Given these preferences the merging countries therefore have a choice to the best method to apply in expanding their economic horizon.

The pros of Macroeconomic Policy Coordination

Regional coordination can with no doubt foster better economic growth; this can be made possible through increased trade among the parties. The increased trade can be made possible where goods and services are traded among the countries therefore opening up new markets for the parties (Issing, p.347). Macroeconomics also contributes to large and branched out investments where countries invest in other countries and thus increased production for all the countries. It leads to enhanced social economic integration in that countries share different cultures and practices that are of common good (Machinea, & Rozenwurcel, p.6). There is harmonization of capital and labor which leads to a better structure and increased income for the countries involved.

Macroeconomics also leads to better and sustainable development within the entire member states in that there is common development and management of infrastructure, environment, and natural resources. There are also chances of increased and better reforms in the public domain where governance, defense, peace, and security are improved. Such benefits are evident in numerous areas where economies have been integrated in that the economies grow strong together ensuring mutual growth of parties.

The cons of Macroeconomic Policy Coordination

Coordination of macroeconomics is however not as smooth as it seems, the numerous challenges that affect it can lead to its downfall and as disadvantages. All the pros described above can turn to cons if there are no proper policies in place to run the macro economy effectively (Maruping, para.7).

The first major threat to regional integration is the risk of loss of national sovereignty where many countries fear loosing their identity as a state. There is also the misunderstanding that may occur between the partners which may lead to animosity. This misunderstanding may be as a result of a partner having more gains than the other, being exploited or not accepting the terms and conditions of the agreement (Maruping, para.8).

The aims Macroeconomic Policy Coordination

The aim of macro economics is to develop a system that will ensure a balanced, non inflammatory and sustained growth that can provide employment and build a highly competitive market (Hodson, p.234). With such gains then the economy will be characterized by high standards of living and a quality life. It will also ensure an increased union of economies and economic performance among members. Policy coordination is necessary in view of the fact that a monetary policy is essential to ensure a working union (Issing, p.349). Budgetary policies may be developed by different states where they will always remain responsible for setting the spending/expenditure.

Maximum benefits must be earned from the coordination of economies; trade and investments must be very high among the partners and the national policies must reflect the influence of the integration. With a successful coordination all national and regional policies will be integrated to give a policy design that will lead to a well functioning outsized market exploited to the maximum (Machinea, & Rozenwurcel, p.8).

Macroeconomic Policy Coordination must also be able to realize economic convergence; structural policies will be integrated such that the products and services in the market are able to attain a long term national economic convergence which will contribute to a better economy. The legislation must also be very effective in the structural policies since the will regulate different important aspects of the trade and financial issues.

Will Macroeconomic Policy Coordination Work?

Given the benefits the economy stands to gain making the macroeconomic policy coordination work depends on different factors. It is very possible for the policies to work especially in committed parties where parties are not driven by selfish interests or partisan issues (Machinea, & Rozenwurcel, p.9). The effectiveness may also be affected by political goodwill and commitment. Some states have had political leaders that aim at exploitation of their neighbors while other politicians are just not after reforms or hate other states for personal reasons. With such leaders then the working of the macroeconomic policy coordination will remain an elusive dream.

The success of macroeconomic policy coordination will depend on several factors which include the presence of a well-organized and non distorted market for goods and services and the factors of production, and where capital moves freely especially labor (Hodson, p.235). There is also need for efficient financial measures of compensation where the domestic cost of adjustment is made affordable, and shares the benefits and costs equitably. The macroeconomic policy coordination should also have compensations for domestic markets for shock effects.

Macroeconomic policy coordination needs to be properly timed in that the integration needs to occur when all countries need each other. This does not mean that it is circumstantial but rather the times and place must coincide to allow a perfect integration. The policies developed must be those that have the least risks since investors will feel more secure with reduced risks. In addition there must be growth, development, improvement and retention of expertise in the economy so as to remain competitive and ensure sustained coordination (Machinea, & Rozenwurcel, p.12). Smaller groups of the economy should be developed to ensure larger success in view of the fact that small and medium enterprises make up majority of many economies. There is also need for promoting and financing development for institutions such as the IMF and WTO which will foster union through funds availability and regulations. Given the above conditions then macroeconomic policy coordination will work effectively.