Growth and Volatility
26 Pages Posted: 20 Jun 2006
Date Written: April 2006
Abstract
Growth and volatility correlate negatively across countries, but positively across sectors. Analytically, whether or not sectoral growth and volatility are correlated positively is irrelevant in the aggregate. Cross-country estimates identify the detrimental effects of macroeconomic volatility on growth, but they cannot be used to dismiss theories implying a positive growth-volatility coefficient, which appear to hold in sectoral data. In particular, volatile sectors command high investment rates, as they would in a mean-variance framework.
Keywords: Sectors, Growth, Volatility
JEL Classification: E32, O40
Suggested Citation: Suggested Citation
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