Date of Award

January 2017

Document Type

Thesis

Degree Name

Master of Science (MS)

Department

Economics & Finance

First Advisor

Chih M. Tan

Abstract

This research investigates the importance of macroeconomic stability to economic growth of developed nations. For over a decade, many developed nations have experienced slower gross domestic product growth as well as slower gross domestic product per capita growth. Meanwhile, recently developed economies, such as the high-performing East Asian economies, have experienced far higher per capita growth rates. Although this is in line with Solow’s (1956) growth model predicting conditional convergence and other researchers attributing the slowdown to sectoral shifts, this offers little solace to the citizens of those developed nations witnessing slower growth. The purpose of this research is to increase governmental leaders’ focus on better managing macroeconomic stability. A combination of correlation, multiple regression, and Bayesian model averaging was used with gross domestic product per capita growth as the dependent variable. Independent variables used were those found in traditional growth research, with a focus on macroeconomic stability variables. It was determined that a developed country’s inflation rate is the only macroeconomic stability variable tested, which enhances the predictability of gross domestic product per capita growth at a 99% confidence level, while the country’s debt share of GDP and deficits were significant at the 90% and 95% level respectively, albeit with opposing signs. Surprisingly, during the research, it was also determined that Levine and Renelt’s (1992) research on robust growth variables did not equally apply in the sampled 72 developed nations. Although the methodology was applied to a broad sample, specific mention of the United States’ experience was made, as it is the largest of the developed nations.

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