How Strong Is the Case for International Coordination?

Abstract

There seems to be a consensus among politicians and economists that economic problems such as high unemployment and inflation can be solved only if economic policies are coordinated on an international scale. The 1987 economic summit at Venice viewed international coordination as essential “to achieving stronger and sustained global growth, reduced external imbalances, and more stable exchange rate relationships.”¹ In a similar vein, Helmut Schmidt (1983, p. 24) argued that “the major industrial countries’ policy mix must be coordinated.” The European Community Commission (1986), as well as the Organization for Economic Cooperation and Development (1987a), has recently urged policymakers to implement a cooperative policy action to restore satisfactory macroeconomic performance of the major industrial countries. These calls for more international coordination receive their theoretical underpinnings from the work of a number of economists who argue that by coordinating their policies individual countries can avoid negative spillover effects of uncoordinated sovereign policymaking and take advantage of positive spillover effects. Coordination would allow each country to achieve its economic targets to a greater degree than if it pursued an independent policy stance.²

This article is based on Scheide and Sinn (1987).