Macroeconomic stability and economic growth: Evidence from Bangladesh

This paper investigates the link and causal relationship between macroeconomic stability and economic growth in Bangladesh for the period 1971 through 2023. Cointegration, vector error correction technique, and the Granger causality test are applied for this purpose. The paper finds sufficient evidence that macroeconomic stability and economic growth are positively related with each other in the long run. Like the long-run relationship, government consumption and investment proxy are significant in the short-run among all the factors of stability while only government consumption and inflation show some causal relationship with growth. Thus, the results are suggestive of the fact that it is better to comment about factors of stability separately rather than macroeconomic stability as a whole. The results also emphasize evaluation of both the long-run and the short-run effects of macroeconomic stability separately for effective policymaking.