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Policy Uncertainty, Persistence and Growth

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  • Aizenman, Joshua
  • Marion, Nancy P

Abstract

This paper explores links between policy uncertainty and growth. Using an endogenous growth model in which domestic investment is characterized by irreversibilities and policy fluctuates between a high- and a low-tax regime, it shows that the magnitude of policy fluctuation and the persistence of policy jointly determine the pattern of investment and growth. Cross-section regressions confirm that for 46 developing countries over the 1970-85 period, policy uncertainty is negatively correlated with both investment and growth. Policy persistence also plays an important role. Copyright 1993 by Blackwell Publishing Ltd.

Suggested Citation

  • Aizenman, Joshua & Marion, Nancy P, 1993. "Policy Uncertainty, Persistence and Growth," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 145-163, June.
  • Handle: RePEc:bla:reviec:v:1:y:1993:i:2:p:145-63
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