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Dynamics of the Cross-Country Growth/Volatility Relationship

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  • Edwards Jeffrey A

    ()
    (North Carolina A & T University)

Abstract

This study evaluates structural changes over time in the cross-country relationship between growth and volatility. Using a GMM 2SLS method to control for endogenous variables, and a time-series based rolling window estimation procedure, this study adds to the current literature in two significant ways. The first is that to assume the cross-country growth/volatility correlation is constant over time, or differs across ad hoc predetermined intervals of time is inappropriate. Instead, the early to mid 1990's seems to be the primary area whereby there are significant changes in the relationship across countries. Specifically, volatility negatively impacted growth for developed nations around this time, while it positively impacted growth for developing nations--the latter happening a few years later than the former. The second finding is that the positive impact that trade had on the growth/volatility relationship for developing countries during this period is outweighed by the negative impact of gross capital flows. Among developed nations, globalization reduces a negative effect that gross capital flows has on the relationship. For policy and constituency appeasement purposes the former is an argument for caution when entering into the global economy, and the latter an argument to embrace it.

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File URL: http://www.degruyter.com/view/j/gej.2007.7.2/gej.2007.7.2.1249/gej.2007.7.2.1249.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal Global Economy Journal.

Volume (Year): 7 (2007)
Issue (Month): 2 (June)
Pages: 1-20

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Handle: RePEc:bpj:glecon:v:7:y:2007:i:2:n:4

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Web page: http://www.degruyter.com

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Cited by:
  1. Edwards, Jeffrey A. & Kasibhatla, Krishna, 2009. "Dynamic heterogeneity in cross-country growth relationships," Economic Modelling, Elsevier, vol. 26(2), pages 445-455, March.
  2. Jeffrey Edwards & Frank Thames, 2010. "Growth volatility and the interaction between economic and political development," Empirical Economics, Springer, vol. 39(1), pages 183-201, August.
  3. Poelhekke, Steven & van der Ploeg, Frederick, 2007. "Volatility, Financial Development and the Natural Resource Curse," CEPR Discussion Papers 6513, C.E.P.R. Discussion Papers.
  4. EDWARDS, Jeffrey, 2009. "Trading Partner Volatility And The Ability For A Country To Cope: A Panel Gmm Model, 1970-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
  5. Syed tehseen, jawaid & Abdul, waheed, 2011. "Effects of Terms of Trade and its Volatility on Economic Growth: A Cross Country Empirical Investigation," MPRA Paper 32694, University Library of Munich, Germany.
  6. Bisio, Laura & Ventura, Luigi, 2012. "Growth and volatility reconsidered: reconciling opposite views," MPRA Paper 35937, University Library of Munich, Germany.

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