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Growth Volatility and the Structure of the Economy

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  • Davide Fiaschi
  • Andrea Mario Lavezzi

Abstract

The aim of the paper is twofold: i) to propose a methodology to compute the growth rate volatility of an economy, and ii) to investigate the relationship between growth volatility and economic development through the lenses of the structural characteristics of an economy. We study a large cross-section of countries in the period 1970-2009, controlling for the stability of the estimates in two subperiods: 1970:1989 (Period I) and 1990:2009 (Period II). Our main findings are: i) the degree of trade openness has a destabilizing effect, while the degree of financial openness has not a significant effect; ii) the size of the public sector displays a U-shaped relationship with growth volatility, but only in Period II; iii) the level of financial development has a negative effect on growth volatility, but only in Period I. Therefore, the dominant policy orientations in the recent decades contained emphasis on potential sources of instability, e.g. on the increase in openness and on the reduction of the size of the public sector.

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Bibliographic Info

Paper provided by Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2011/117.

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Date of creation: 06 Jan 2011
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Handle: RePEc:pie:dsedps:2011/117

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Keywords: growth volatility; economic development; economic structure; nonparametric methods.;

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  1. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 243-287, 02.
  2. Allen C. Head, 1995. "Country Size, Aggregate Fluctuations, and International Risk Sharing," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 1096-1119, November.
  3. Julian di Giovanni & Andrei A. Levchenko, 2006. "Trade Openness and Volatility," Development Working Papers 219, Centro Studi Luca d\'Agliano, University of Milano.
  4. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Thaicharoen, Yunyong, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," CEPR Discussion Papers 3575, C.E.P.R. Discussion Papers.
  5. Adeel Malik & Jonathan R W Temple, 2005. "The Geography of Output Volatility," CSAE Working Paper Series 2005-07, Centre for the Study of African Economies, University of Oxford.
  6. Ewald Walterskirchen & et al., 1998. "Export-led Economic Growth. Austria's Economy in 1997," WIFO Monatsberichte (monthly reports), WIFO, vol. 71(4), pages 239-280, April.
  7. Davide Fiaschi & Andrea Mario Lavezzi, . "On the Determinants of Growth Volatility: a Nonparametric Approach," Discussion Papers 2003/25, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  8. Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
  9. Sospeter N. Onchoke & Francis In, 1998. "An evaluation of export revenues as determinants of economic growth in the South Pacific island nations," Journal of International Development, John Wiley & Sons, Ltd., vol. 10(7), pages 857-869.
  10. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September.
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