Macroeconomic stability and economic growth: the case of Spain

Abstract

Recent contributions have pointed out to a beneficial effect of macroeconomic stability and market liberalization on economic growth. This paper analyses this issue empirically by means of cointegration techniques, using annual data from the Spanish economy, 1962–95. Some proxies of macroeconomic instability – such as inflation, public deficit and various types of public expenditure as a share of GDP – and market distortions are included in the equations as regressors. The results show a negative correlation of these proxies and economic growth. Therefore, the Spanish experience suggests that macroeconomic stability and market liberalization are prerequisites for economic growth.