Chapter 8 Growth Volatility and the Structure of the Economy (original) (raw)
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Volatility and Growth: An Explanation for the Disagreement
2013
This paper reconsiders the e_ects of volatile growth rates on growth itself. I show that the underlying endogeneity of government size can hide the net growth e_ects from volatility. There exists a positive direct and a negative indirect channel, with the latter operating through the size of the public sector. Risk-averse citizens respond to volatility either with precautionary savings (direct e_ect) or by demanding a stronger public safety net, which in turn lowers growth (indirect e_ect). However, the indirect channel is only available if the political regime allows citizens to determine their desired level of public services. I test this theory on a balanced panel of 95 countries from 1960 { 2010. The paper reveals the latent endogeneity of government size in a single growth equation framework and o_ers a simultaneous estimation method as an alternative. Results support the existence of both effects. The direct channel is stronger in autocratic societies, but as a country turns to democracy the indirect channel dominates. Volatility has a positive net e_ect on growth in autocratic nations, but a negative net effect in democratic societies. This finding explains why previous growth analyses of volatility at times reached contradicting conclusions.
Openness and Growth Volatility
Documentos de Trabajo ( …, 2008
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Growth Volatility and Openness in Sub-Saharan Africa
Marmara Journal of Economics
There is no a unique agreement regarding the impact of trade openness and financial openness on growth volatility. We carried out an empirical investigation using system GMM to assess the impact of openness on growth volatility in Sub-Saharan African. The analysis considered a panel of 29 countries from 1981 to 2010. According to our results, contrary to earlier findings, both trade and financial openness significantly reduce growth volatility in Sub-Saharan Africa. However, financial openness isn't found to be robust for different specifications. We further decomposed trade and financial openness. Trade in 'manufacturing goods' significantly reduce volatility in comparison to trade in 'nonmanufacturing goods'. A further decomposition of financial openness into FDI and portfolio flows does not reveal a significant effect on growth volatility.
Revisiting the Volatility- Growth relationship: Some cross country evidence, 1978–2017
Cogent Economics & Finance, 2020
This paper attempts a re-examination of the relationship between the output volatility and economic growth using an annual data set for select 67 countries for the period 1978 to 2017 spanning over 40 years. Towards this objective cross section and panel, regressions are estimated for different country groups namely developing, industrial, high financially integrated (HFI) and low financially integrated (LFI) country groups. Overall, the results indicate that output volatility as a proxy of macroeconomic volatility has negative effect on economic growth. The results appear to be stronger when we include other control variables as part of an information set. The panel regression results support the negative relationship between economic growth and volatility for the developing countries. The financial development indicator indicates significant relation with growth for industrial economies.
Financial Development, Shocks, and Growth Volatility
Macroeconomic Dynamics, 2014
This paper uses spectral theory to develop the following two testable hypotheses in a unified framework for the predictions of business-cycle and endogenous growth models: (i) financial development affects only business-cycle volatility; and (ii) shocks affect both business-cycle volatility and long-run volatility of GDP growth. In other words, volatility caused by shocks is more persistent than that caused by financial underdevelopment. We decompose the business-cycle and long-run volatility by the spectral method and then test the hypotheses at the cross-country level. Empirical evidence provides support for both hypotheses. Higher private credit, a bank-based measure of financial development, dampens business-cycle volatility but not long-run volatility. Volatility of shocks, as measured by the volatility of changes in the terms of trade, magnifies both business-cycle and long-run volatility. The results are robust to accounting for endogeneity, a market-based measure of financia...
Trade openness and economic growth volatility: An empirical investigation
Cogent Economics & Finance
This paper investigated the impact of trade openness on economic growth volatility of Ghana from 1970 to 2013, using cointegration and error correction techniques. Our findings show that both the long and short run economic growth volatility is positively influenced by changes in trade openness. Volatility in domestic credit to private sector, shocks after the economic liberalization and financial openness contributed negative to economic growth volatility in the short run. The major policy implication of our paper is that developing economies should take into consideration their own realities in their trade policies to limit economic growth volatility.
Volatility and Growth in Developing Countries.
iea.ie
The main research question of this paper is if developing countries experience more idiosyncratic income risk than more developed economies, and if the latter display more "aggregate" (systematic) income risk? Following theoretical contributions by and Acemoglu and Zilibotti (1997) we argued that if one assumes that riskier projects are only available to more developed countries and is an important source of growth, engaging in such activities would yield more volatility and thus volatility and growth could be positively related. This argument is compatible with Acemoglu and Zilibotti's (1997) model. We explicitly test for this relationship after confirming earlier findings by , and we try to improve on the literature by splitting volatility in a positive and negative component, and testing for specific relationships between growth and volatility. The main result is that the empirical findings corroborate the claim that aggregate volatility is often positively related to growth, especially in less developed countries.
Growth and volatility reconsidered: reconciling opposite views
2012
Many contributions in the recent literature have investigated over the relationship between growth and its volatility, without getting a clear and unambiguous answer. Besides reassessing the well-known e¤ect of output volatility on growth as benchmark analysis, this study aims at looking into the "black box" of the business cycle volatility by disentangling the impacts of volatility of GDP major components -i.e. private consumption, private investment and government expenditure -on growth, simultaneously considered. Our empirical analysis unveils a remarkably robust and strong negative correlation of consumption volatility with mean growth, and a positive one with volatility of investment and of public expenditure. If these …ndings shed some additional light on the (still controversial) relationship between economic ‡uctuations and growth, they also make it possible to compare the relative impact of each component, with possibly relevant policy implications. Importantly, this might reconcile opposite views about the issue, in that di¤erent empirical results might originate from the relative importance across empirical studies of the various components of volatility.
The issue about the association between volatility of output growth and output growth has been subject of research among economists. Some economists found negative association, while others found positive association. If one reads through this literature he will find out that there are many reasons to believe that there exist positive association between volatility and growth, and so there are as many reasons to believe that there exists negative association between volatility and growth. This paper proves that there exists positive association between volatility and growth on a large sample of pooled crosscountry data (from all geographic regions). The inclusion of other variables in the models especially quality of institutions does not seem to reduce volatility. Inclusion of macroeconomic imbalances (Black Market Premium), and trade (Real/Current openness), does not affect volatility much but also does not affect GDP growth neither, since this variables lack statistical significance. Other variables from the neo-classical function (human capital, initial output, physical capital (investment), and convergence) affect GDP growth as expected.