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The Role of Macroeconomic Factors in Growth

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  • Stanley Fischer
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    Abstract

    Using a regression analog of growth accounting, I present cross- sectional and panel regressions showing that growth is negatively associated with inflation, large budget deficits, and distorted foreign exchange markets. Supplementary evidence suggests that the causation runs from macroeconomic policy to growth. The framework makes it possible to identify the channels of these effects: inflation reduces growth by reducing investment and productivity growth; budget deficits also reduce both capital accumulation and productivity growth. Examination of exceptional cases shows that while low inflation and small deficits are not necessary for high growth even over long periods, high inflation is not consistent with sustained growth.

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    File URL: http://www.nber.org/papers/w4565.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4565.

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    Date of creation: Dec 1993
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    Publication status: Published as "Economic Reform in the USSR and the Role of Aid", BP, Vol.22,no. 2 (1991): 289-302. Published as "The Role of Macroeconomic Factors in Growth", Journal of Monetary Economics, Vol. 32,no. 3 (1993): 485-512.
    Handle: RePEc:nbr:nberwo:4565

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    1. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series, The World Bank 609, The World Bank.
    2. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, American Economic Association, vol. 63(3), pages 326-34, June.
    3. Romer, Paul M., 1990. "Human capital and growth: Theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 32(1), pages 251-286, January.
    4. G. A. Mackenzie, 1989. "Are All Summary Indicators of the Stance of Fiscal Policy Misleading?," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 743-770, December.
    5. Thorvaldur Gylfason, 1991. "Inflation, Growth, and External Debt: A View of the Landscape," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 14(3), pages 279-297, 09.
    6. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(2), pages 141-163, September.
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