The Role of Macroeconomic Factors in Growth

Stanley Fischer

NBER Working Paper No. 4565
Issued in December 1993
NBER Program(s):   EFG   ME

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.

(365 K)

Published: 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.

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