Macroeconomic Stability and the Distribution of Growth Rates

Vatcharin Sirimaneetham and Jonathan Temple

The World Bank Economic Review, 2009, vol. 23, issue 3, 443-479

Abstract: It is often argued that macroeconomic instability can form a binding constraint on economic growth. Drawing on a new index of stability, threshold estimation is used to divide developing economies into two growth regimes, depending on a threshold level of stability. For the more stable group of countries, the output benefits of investment are greater, conditional convergence is faster, and measures of institutional quality have more explanatory power, suggesting that instability forms a binding constraint for the less stable group. Macroeconomic stability is also shown to dominate several other candidates for identifying distinct growth regimes. Copyright The Author 2009. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Date: 2009
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