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This essay analyzes the differences between the economies of industrialized countriesand developing countries, which have important implications for macroeconomics interms of theory and policy. It considers the differences in macroeconomic objectives andexamines why the reach of macroeconomic policies is different in the two sets ofcountries. It argues that the distinction between short-run macroeconomic models andlong-term growth models is not quite appropriate for developing countries, wheremacroeconomic constraints on growth straddle time horizons and short-term policieshave long-term consequences. The essential hypothesis is that the nature of relationshipsand the direction of causation in macroeconomics, which shape analysis, diagnosis andprescription, depend on the institutional setting and not the analytical structure of models.And even if some laws of economics are universal, the functioning of economies can bemarkedly different. Therefore, economic theory and policy analysis should recognize,rather than ignore, such myriad differences.