MACROECONOMIC STABILITY, INVESTMENT AND GROWTH IN DEVELOPING-COUNTRIES

It is widely hypothesised that sound macroeconomic policies promote gr owth by providing a more secure environment for private sector investm ent decisions. This proposition is tested for a cross-section of devel oping countries over the period 1980-90 using a variety of measures of the quality of macroeconomic management. The evidence suggests that g ood macroeconomic management is associated with faster growth for a gi ven rate of investment. It is less clear that the volume of investment is significantly affected. There is little evidence of non-linearitie s. The results are robust to an extension of the data period back to 1 972.