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Aboobaker, Adam and Ugurlu, Esra Nur (2023) 'Weaknesses of MMT as a Guide to Development Policy.' Cambridge Journal of Economics, 47 (3). pp. 555-574.

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Abstract

This paper addresses the limitations of Modern Money Theory (MMT) as a guide to development policy. We explore two main questions on this topic: whether policies championed by MMT advocates (i) ought to be implemented in low- and middle-income economies and (ii) can be implemented. In relation to the first question, we argue that the MMT literature mischaracterises the essence of the development challenge for low- and middle-income economies. Our argument is that the chief long-run growth challenge faced by developing countries concerns structural transformation rather than general aggregate demand insufficiency. We use several formal representations of the consumption–investment trade-off in growth theory, found in the Harrod–Domar growth model, the Feldman–Mahalanobis model and Kalecki’s 1963 growth model to illustrate this point. Concerning the second question, we argue that even if MMT had the correct diagnosis of the principal growth challenge faced by developing countries, its chief policy recommendations would likely be counter-productive if implemented outside of select advanced economies. We draw from the international economics literature on currency hierarchy and exchange rate volatility to illustrate this point.

Item Type: Journal Article
Keywords: MMT, structural change, macro policy, growth models, history of economic thought.
SOAS Departments & Centres: Departments and Subunits > Department of Economics
Subjects: H Social Sciences > HB Economic Theory
ISSN: 0309166X
Copyright Statement: This is the version of the article accepted for publication in Cambridge Journal of Economics published by Oxford University Press. Re-use is subject to the publisher’s terms and conditions
DOI (Digital Object Identifier): https://doi.org/10.1093/cje/bead009
Date Deposited: 27 Jan 2023 14:12
URI: https://eprints.soas.ac.uk/id/eprint/38676
Related URLs: https://academi ... bead009/7127028 (Publisher URL)

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