The Micro-level Impact of Macroeconomic Policies: The Firm Under Adjustment

In the application of structural adjustment in developing countries, macroeconomic policies are normally recommended by the IMF and the World Bank as part of a package of stabilization and economic restructuring. Emphasis is given in these macro policies to appropriate price signals that ensure the proper functioning of markets. These price incentives ought to lead to the efficient operation of firms, increased profitability and investment - particularly in the traded goods sector. Adjustment policies do not clearly articulate the manner and the processes by which firms adjust to become more efficient. To better understand the impact of the macro policies, it is worthwhile to understand how these policies affect the firm and possibilities for adjustment.