Cross-Country Evidence on the Link between Volatility and Growth
28 Pages Posted: 4 Aug 2000 Last revised: 20 Jan 2022
Date Written: December 1994
This paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations. In a sample of 92 countries as well as a sample of OECD countries, we find that countries with higher volatility have lower growth. The addition of standard control variables strengthens the negative relationship. We also find that government spending-induced volatility is negatively associated with growth even after controlling for both time- and country-fixed effects.
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