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Fickle investors : an impediment to growth?

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Author Info
Scott, A.
Uhlig, H. (Tilburg University, Center for Economic Research)

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Abstract

The aim of this paper is to construct theoretical models which help to shed light on the recent criticisms of volatile investment flows. We do not make any empirical attempt to establish the existence or gauge the importance of the adverse effects of volatile investment flows nor do we make any implicit claims regarding the role of such flows in recent exchange rate crises. Instead we simply assume the existence of fickle outside investors and examine the consequences for the economy in the context of two partial equilibrium endogenous growth models. In our first model, the scale of fickle outside investment funds traces out a meanvariance tradeoff for the growth rate of the economy. In particular, the volatility of these funds dissuades risk averse agents from risky entrepreneural activities. This result opens up the possibility that some regulation of outside investment may increase growth. Our second model involves increasing returns and multiple equilibria. In the context of this model fickle investor behaviour can have very persistent and substantial effects on both output growth and volatility.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 134.

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Date of creation: 1998
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Handle: RePEc:dgr:kubcen:1998134

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Find related papers by JEL classification:
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Boyan Jovanovic, 2004. "Asymmetric Cycles," NBER Working Papers 10573, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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