In emerging markets, economic growth has traditionally relied heavily on exports as a way to boost domestic industries and increase national wealth. However, when advanced economies experience slow growth, this traditional path becomes less viable because there are fewer opportunities for selling products abroad. As a result, these countries must turn their focus inward and rely more on stimulating internal demand to drive economic growth.
The quote suggests that fostering domestic demand is challenging due to the risk of over-stimulation. This means that governments might be tempted to implement overly aggressive policies aimed at boosting consumption or investment, which could lead to unsustainable economic conditions. Over-stimulating can result in inflation, excessive debt accumulation, and other economic imbalances if not managed carefully. The real challenge lies in finding a balanced approach to domestic demand that supports growth without causing harmful side effects.
Raghuram Rajan is an economist known for his insightful analysis of financial markets and the global economy. He served as the Governor of the Reserve Bank of India from 2013 to 2016, where he tackled issues such as inflation control and banking reforms. His expertise in macroeconomics and finance has earned him recognition both within academic circles and among policymakers worldwide.
