It is now widely accepted that a stable macroeconomic framework is necessary though not sufficient for sustainable economic growth1. Three major World Bank studies of adjustment lending2 -balance of payments support loans made to help finance policy reforms in developing countriesaffirm this basic conclusion, as does the World Development Report for 1991, The Challenge of Development. This view is supported by much striking evidence. For instance, in Latin America, the recovery of economic growth in Chile and Mexico was preceded by the restoration of budget discipline and the reduction of inflation. By contrast, the current or very recent economic crises in Brazil and Argentina coincide with high inflation punctuated by stabilization attempts and continued macroeconomic instability. The fast growing countries of East Asia have generally maintained single or low double-digit inflation, have for the most part avoided balance of payments crises, and when they have had them -as for instance in Korea in 1980moved swiftly to deal with them. The lessons of the case study evidence amassed in the major World Bank research project headed by Little, Cooper, Corden and Rajapatirana (1992), summarized in Corden (1991), support the conventional view. The notion that macroeconomic stability is not sufficient for growth appears to be supported by evidence from Africa, where most of the countries of the franc zone -whose exchange rate has been rigidly fixed to the French franc for nearly fifty years and which have therefore maintained low inflationhave grown slowly since 1980, and from India, which grew steadily but slowly while pursuing conservative macroeconomic policies from 1947 to the end of the 1980s. In this paper3 I first discuss the notion of a stable macroeconomic framework and then summarize theoretical considerations linking growth to macroeconomic policies. In Parts II and III I present evidence supporting the view that macroeconomic stability is conducive to growth. In Part IVI present some concluding remarks.
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