7. Macro Policy for Drivers of Growth and Jobs

Building on the earlier premise that accumulation of physical capital explains per capita incomes as much as human capital, Mahmood examines macro policies that should enable countries to increase both types of investment. He finds that looser monetary policy must work in tandem with—and be sequenced to follow—more stringent macroprudential regimes to enable higher levels of investment. On investment in human capital, the key enabling policy variable is government expenditure on both basic and tertiary education. That said, there is a broader policy argument to be made for balancing a country’s reliance among the drivers of investment, exports, and consumption to enable a better balance between incentives to raise productivity and incomes and incentives to raise aggregate demand.