The incidence of external shocks and of the evolution of the external environment has depended on the type and degree of exposure to external trade and finance, in particular a country's initial position as regards the size and structure of its trade and debt. However, developing countries have not been merely passive victims of exogenous shocks. Their own policies have had a significant influence on the extent to which external factors have affected their economic performance. Countries have also differed in their underlying potential for adjustment owing to differences in the size and diversity of their tradeable goods sectors and the level of income, consumption and investment, as well as the overall size, geographic location, climate, natural resource base and population.
International economic coordination is blocked not only by conflicting political goals, but by conflicting ideas about how both the global and the domestic economies' function, for example whether deficits cause a country's exchange rate to appreciate or depreciate ? The only hope of coming to grips with the large imbalances in the world economy is to look away from short-term financial market fluctuations or business cycle real output and income are mainly determined by underlying trends of productivity and demographic movements, and can be taken as given from the point of view of macro-economic policy.