Preface

Macroeconomic analysis is a potent tool for stimulating strong economic growth and sustainable development. It generates insights into understanding the intricacies of national and global economic trends and issues that arise from the policy choices of governments. The core principles of macroeconomics are about activities that determine the performance of the economy based on the intricate interaction of variables relating to the components of the economic system. Economic growth is about relationships among such factors as competitive behaviour and equilibrium dynamics, diminishing returns and the accumulation of physical and human capital, the interplay between per capita income and the population growth rate, and the effects of technological progress on the capabilities of factors of production in the discovery of new goods and methods of production.

The relationship between production and consumption is the bedrock upon which all other factors revolve in driving economic growth. Hence, macroeconomic policies for generating growth require effective coordination of production and consumption, the intensity of which leads to discoveries of more sophisticated methods of production through which technological progress occur to accelerate economic growth. Technological progress enhances the productivity of factors of production thereby increasing the absorptive capacity of the economy. Through inter-sectoral linkages and response to incentives, sectors of the economy expand production by mutually self-perpetuating processes to create opportunities for economies of scale that translate into the lower per-unit cost of production.

Effective governance, resource endowments, and demography are critical factors that need to be properly harnessed along with sound economic principles to underpin strong economic growth. The efficacy of regulatory framework to create enabling conditions for nurturing and bolstering robust value-adding production structures anchored on appropriate macroeconomic management are the fundamental building blocks of strong economic growth. In accordance with these essential principles that elucidate the essence of macroeconomics in achieving strong economic growth, this book brings together a collection of chapters by experts in the field. Macroeconomic Analysis for Economic Growth examines different aspects of macroeconomics that are germane to achieving strong economic growth.

Section 1, "Macroeconomics of Economic Growth," begins with an introductory chapter that discusses the analytical convergence of various economic growth models with macroeconomic policy insights emanating from them. Chapter 2 presents an investigation into the key factors behind the impressive growth of the Ugandan economy, revealing that government consumption and investment have been crucial determinants of the strong growth trajectory overshadowing such drawback variables as inflation, foreign aid, and structural adjustment disruptions. Chapter 3 is an empirical evaluation of the theory of life-cycle hypothesis in Tunisia based on the uncertainties that becloud the ageing population with inadequate savings amid employment challenges, concluding that without employment the life-cycle expectation is untenable. Chapter 4 argues that instead of foreign direct investment (FDI), Sub-Saharan African (SSA) countries are facing the challenge of

foreign direct divestment (FDD), both of which are determined by similar factors such as lending rates, urbanisation, and trade openness. Chapter 5 discusses the use of taxation as a tool for reducing inequality, which is crucial for improving welfare through redistribution and ensuring that more people benefit from the proceeds of economic growth.

Section 2, "Labour Market and Employment," begins with Chapter 6, which explains the dynamics of the labour market in terms of the supply of labour by workers and the demand for labour by firms. It illustrates the backwards-bending nature of the labour supply curve and the downward-sloping nature of the labour demand curve with the equilibrium in a perfectly competitive labour market, concluding with policy recommendations for achieving favourable labour market equilibrium. Chapter 7 discusses the possible occurrence of involuntary unemployment in the overlapping generations model of economic growth, concluding that aggregate demand failures with sticky prices tend to weaken investments. Chapter 8 discusses the implication of the relatively low rate of the youth unemployment rate, which is higher among females compared to males, in the Gulf Cooperation Council (GCC) countries. It reveals that the gender disparity in youth unemployment is caused by policies that reflect the social and cultural realities of the GCC countries and concludes that linking pay to productivity is likely to reduce the total and female youth unemployment rates.

Section 3, "The Financial System and Macroeconomic Performance," begins with Chapter 9, which examines anatomized financial markets and the pattern of financial capital flows into developing and developed countries in mobilizing domestic savings and attracting foreign investments to finance development activities. Chapter 10 reports the findings from an investigation of factors underlying banking fragility in Turkey and reveals that asset growth, capital adequacy ratio, financing-to-total deposits ratio, return on asset, and cost-to-income ratio are significant banking-level indicators of the banking fragility of participation banks in Turkey. Chapter 11 reports the outcome of an evaluation of the impact of innovative monetary policies on exchange rate volatility in Nigeria and shows that the implementation of managed exchange rate instruments has the desired effect of moderating exchange rate volatility, leading to inflationary spikes in the Nigerian economy. Chapter 12 examines the asymmetric relationship between exchange rate volatility and macroeconomic performance in Nigeria between 1986 and 2019 and shows that exchange rate volatility exhibited a significant effect on the inflation rate. The chapter authors recommend that monetary policy should focus on regulating the exchange rate to control the general price level in the economy.

The topics, issues, and findings that make up the twelve chapters of this book provide insights to guide macroeconomic policy formulation implementation to stimulate and drive strong economic growth. Even though all the chapters are relevant to all economies at various stages of development, some are more relevant to economies at certain specific stages.

> **Musa Jega Ibrahim** Islamic Development Bank, Jeddah, Saudi Arabia

Section 1
