Influencing Factors of Macroeconomic Stability Across Income Groups

This study empirically investigates the factors affecting macroeconomic stability across 79 countries spanning low, lower-middle, upper-middle, and high-income groups, using data from 2000 to 2023. A Macroeconomic Stability Index was constructed using a z-score method combining inflation rate, inflation volatility, government budget balance, and current account balance. Econometric analysis employed Pesaran CD, CIPS unit root, and Westerlund cointegration tests. Long-run coefficients for the low-, lower-middle-, and upper-middle-income groups were estimated using CCEMG, whereas the high-income group was examined using a stationary short-run FE–DK model. Independent variables included per capita income, trade openness, natural resource rents, financial development, institutional quality (control of corruption and government effectiveness), and public debt. The results indicate income-group-specific associations with macroeconomic stability. In the long run, trade openness is negatively associated with MSI in the upper-middle-income group, while public debt has a negative association in the lower-middle-income group. Given the small low-income sample and the variation across specifications, we treat the negative FD and INST coefficients as exploratory. In the high-income short-run model, public debt is negatively associated with MSI, while financial development displays a weaker negative association. In the short-run pooled interaction model, changes in natural resource rents are positively associated with MSI in the lower-middle-income group at the 10% level and in the upper-middle- and high-income groups at the 1% level. Coefficient equality across income groups is rejected at the 10% level (p = 0.058), whereas the long-run natural-resource-rent coefficients remain statistically insignificant. System-GMM primarily confirms strong MSI persistence. Taken together, the results provide no general evidence of a resource curse or of a stabilizing role for public debt across income groups. Policy implications should therefore be considered separately for each income group.