Macroeconomic stability, investment and growth in developing countries

It is widely hypothesised that sound macroeconomic policies promote growth by providing a more secure environment for private sector investment decisions. This proposition is tested for a cross-section of developing countries over the period 1980-90 using a variety of measures of the quality of macroeconomic management. The evidence suggests that good macroeconomic management is associated with faster growth for a given rate of investment. It is less clear that the volume of investment is significantly affected. There is little evidence of non-linearities. The results are robust to an extension of the data period back to 1972.