Growth, Macroeconomics, and Development

55 Pages Posted: 20 May 2004 Last revised: 13 Feb 2022

See all articles by Stanley Fischer

Stanley Fischer

Bank of Israel; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Date Written: May 1991

Abstract

The 1980s were both the lost decade of growth for much of Latin America and Africa, and the period in which -- through the new growth theory -- macroeconomists returned to the study of growth and development. The new growth theory is production function driven and concerned primarily with steady states, and has paid little attention to the role of macroeconomic policy -- as reflected for instance in the rate of inflation and the budget deficit -- in determining growth. This paper presents a variety of evidence that macroeconomic policies matter for long-run growth. First, macroeconomic variables enter the typical new growth theory cross-country regressions with statistical significance and the expected signs. Second, evidence from large multi?country case studies, and from case-studies of Chile and Cote d'Ivoire presented in the paper, shows that macroeconomic policy choices have had a significant impact on growth over periods of more than a decade. The conclusion is that macroeconomic policy choices, including the budget deficit, the exchange rate system, and those choices that determine the inflation rate, matter for long-term economic growth.

Suggested Citation

Fischer, Stanley, Growth, Macroeconomics, and Development (May 1991). NBER Working Paper No. w3702, Available at SSRN: https://ssrn.com/abstract=226942

Stanley Fischer (Contact Author)

Bank of Israel ( email )

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Jerusalem, 91907
Israel

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

International Monetary Fund (IMF) ( email )

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United States

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