Working Paper: CEPR ID: DP5642
Authors: Vatcharin Sirimaneetham; Jonathan Temple
Abstract: We examine the view that high-quality macroeconomic policy is a necessary, but not sufficient, condition for economic growth. We first construct a new index of the quality of macroeconomic policy. We then directly compare growth rate distributions across countries with good and bad policies; use Bayesian methods to examine the partial correlation between policy and growth; and outline how growth and steady-state income levels might have differed, had all countries achieved good policy outcomes. One finding is that bad macroeconomic policies can be offset by other factors, but the fastest-growing countries in our sample all shared high-quality macroeconomic management.
Keywords: Bayesian model averaging; Counterfactuals; Economic growth; Macroeconomic policy; Washington Consensus
JEL Codes: O23; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bad macroeconomic policies (E65) | slow growth (O41) |
| high-quality macroeconomic policies (E60) | faster growth rates (O49) |
| improvement in quality of macroeconomic policy (E60) | increase in annual growth rates (O42) |
| good macroeconomic policies (E60) | sustained high growth (O44) |