ABSTRACT
This chapter discusses the relationship between internal economic policy and international economic policy co-operation from a political economy, or positive, perspective. It argues that international co-operation can be very useful in disciplining governments that may be tempted to pursue destabilising macroeconomic policies or have already done so. International governance forces decisions upon governments that regularly result in trade-offs between the external policy objective and the internal target. International policy co-operation and co-ordination both have their merits. The chapter discusses some lessons for macroeconomic policies from the considerations and monetary policy along with some general suggestions of how to incorporate the G8 process into the policy model. Through international policy co-operation, a government can be forced to pursue policies that are in the best interests of the country as a whole by giving that government the possibility of declining the demands of special interest groups.
