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Volatility and Investment: Interpreting Evidence from Developing Countries

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  • Joshua Aizenman
  • Nancy Marion

Abstract

We uncover a significant negative correlation between various volatility measures and private investment in developing countries, even when adding the standard control variables. No such correlation is uncovered when the investment measure is the sum of private and public investment spending. Indeed, public investment spending is positively correlated with some measures of volatility. These findings suggest that the detrimental impact of volatility on investment may be easier to detect using disaggregated data. We provide several possible interpretations for our findings. Nonlinearities in preferences or budget constraints can cause volatility to have first‐order negative effects on private investment.

Suggested Citation

  • Joshua Aizenman & Nancy Marion, 1999. "Volatility and Investment: Interpreting Evidence from Developing Countries," Economica, London School of Economics and Political Science, vol. 66(262), pages 157-1179, May.
    • Handle: RePEc:bla:econom:v:66:y:1999:i:262:p:157-1179
    DOI: 10.1111/1468-0335.00163
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    Cited by:

    1. Lee Robinson & Alice Nicole Sindzingre, 2012. "China’s Ambiguous Impacts on Commodity-Dependent Countries: the Example of Sub-Saharan Africa (with a Focus on Zambia)," Working Papers hal-04141046, HAL.
    2. Bambe, Bao-We-Wal, 2023. "Inflation targeting and private domestic investment in developing countries," Economic Modelling, Elsevier, vol. 125(C).
    3. Dongwon Lee, 2023. "International cooperation in foreign reserve policies in the presence of competitive hoarding," Review of International Economics, Wiley Blackwell, vol. 31(2), pages 389-412, May.
    4. Joshua Aizenman & Eduardo Cavallo & Ilan Noy, 2015. "Precautionary Strategies and Household Saving," Open Economies Review, Springer, vol. 26(5), pages 911-939, November.
    5. Darko Lazarov & Kiril Simeonovski, 2023. "Macroeconomic Stability and Economic Growth: An Empirical Estimation for North Macedonia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 8, pages 78-94.
    6. Bao-We-Wal Bambe, 2023. "Inflation Targeting and Private Domestic Investment in Developing Countries," Post-Print hal-04227639, HAL.
    7. Yuan, Mingqing, 2023. "Economic Policy Uncertainty and Corporate Investment Dynamics: Evidence from Listed Chinese Firms," MPRA Paper 119992, University Library of Munich, Germany.

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