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Risk and Growth: Theoretical Relationships and Preliminary Estimates for South Africa

In: Globalization and Regional Economic Modeling

Author

Listed:
  • Russel J. Cooper

    (Macquarie University)

  • Kieran P. Donaghy

    (Cornell University)

Abstract

The issue of the costs of economic instability relative to the costs of reduced growth is one which has created considerable controversy both politically and amongst the ranks of economists. The publication of Lucas’s (1987) calculations, which claimed to show an enormous relative welfare benefit in favor of promoting growth rather than stability, has been accepted in some quarters as a strong justification for small government. On the other hand, a significant but much less influential rearguard action continues to be fought. At the level of macroeconomic research, Ramey and Ramey (1995) present evidence on a negative link between volatility and growth. They conclude that: “..... by assuming no interaction between volatility and growth, the theoretical business cycle and growth literatures omit important elements. These omissions can lead to questionable conclusions, such as Lucas’s (1987) calculation of the potential benefits of eliminating business-cycle volatility.” (Ramey and Ramey (1995) p. 1148).

Suggested Citation

  • Russel J. Cooper & Kieran P. Donaghy, 2007. "Risk and Growth: Theoretical Relationships and Preliminary Estimates for South Africa," Advances in Spatial Science, in: Russel Cooper & Kieran Donaghy & Geoffrey Hewings (ed.), Globalization and Regional Economic Modeling, chapter 17, pages 417-464, Springer.
    • Handle: RePEc:spr:adspcp:978-3-540-72444-5_17
    DOI: 10.1007/978-3-540-72444-5_17
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