Macroeconomic instability and growth : case of selected OIC countries

Abstract

In the past decades, it is observed that there is a spectacular divergence of growth amongst developing countries. The performance of OIC countries with respect to the per capita income growth is not satisfactory as compared to the developing countries as a whole. This study is carried out to investigate whether macroeconomic instability is one of the factors, among others, to cause slower growth rates in OIC countries. The present study employs a time series and cross section data set of 11 selected OIC countries between 1980 and 1997. Some proxies of macroeconomic instability such as inflation, budget deficit as a percentage of GDP, external debt and balance of payment deficit are included in the equations as regressors. The results of the study are divided into three main groups. These includes; income groups; overall countries and individual countries. Overall, the results of this study based on income groups suggest that policy-induced macroeconomic instability does have a negative influence on growth for middle-income groups of the OIC countries, through external debts and budget deficit. As such, macroeconomic instability will determine growth for this income group and this is an area that should be looked into for better progress economically. For overall countries, none of the factors are found to affect growth significantly. The results for individual countries show that macroeconomic instability affects growth negatively in some ore countries through inflation and balance of payment deficit.