Macroeconomic Determinants of Economic Growth: An Analytical Study of Inflation, Investment, and Consumption Dynamics

Abstract

This study examines the relationship between key macroeconomic factors and economic growth, with a focus on inflation, investment, and consumption dynamics. It adopts an analytical framework to explore three core dimensions: the growth–stability trade-off reflected through inflation, the role of external versus domestic investment captured by foreign direct investment (FDI) and gross capital formation, and the significance of demand-side forces through consumption expenditure and its share in GDP. Using secondary data from established national and international sources, the study analyzes trends over a multi-year period to identify patterns and relationships among the variables. The findings suggest that consumption plays a central role in driving economic growth, underscoring the importance of demand-side dynamics in shaping overall economic performance. Inflation exhibits a nuanced relationship with growth, indicating that while moderate inflation may support expansion, volatility can hinder stability and long-term growth prospects. Investment variables, including FDI and capital formation, demonstrate mixed effects, reflecting the influence of structural conditions, policy environment, and economic context. Overall, the study highlights that economic growth is a multifaceted process influenced by the interaction of macroeconomic stability, investment flows, and consumption patterns. The results emphasize the need for balanced and well-coordinated macroeconomic policies that simultaneously promote stable prices, encourage productive investment, and sustain consumption demand to achieve long-term economic growth.