Does macroeconomic stability promote economic growth? Some econometric evidence from SAARC countries

Abstract

PurposeThe main purpose of this research is to examine the influence of macroeconomic stability on economic growth of SAARC (South Asian Association for Regional Cooperation) countries.Design/methodology/approachUsing panel data of 1991–2020, fixed effect regression analysis, pooled ordinary least squares and generalized method of moments techniques have been conducted to demonstrate whether macroeconomic stability contributes to economic growth. Moreover, cross-sectional dependency test, unit root test, correlation analysis and granger causality tests have been run.FindingsRobust findings indicate that inflation has negative impacts on economic growth which indicates that lower level of macroeconomic instability promotes countries’ economic growth. This study also observed that foreign direct investment, domestic credit delivered to private sector, currency exchange and institutional difference across countries are affirmatively connected while labor force is negatively associated with economic growth.Originality/valueEmpirical findings of this study signify that macroeconomic stability have significant effects on economic growth. Findings of this study have superior contributions for the policy makers to achieve sustainable economic growth.