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Dynamics of the Cross-Country Growth/Volatility Relationship

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  • Edwards Jeffrey A

    () (North Carolina A & T University)

Abstract

This study evaluates structural changes over time in the cross-country relationship between growth and volatility. Using a GMM 2SLS method to control for endogenous variables, and a time-series based rolling window estimation procedure, this study adds to the current literature in two significant ways. The first is that to assume the cross-country growth/volatility correlation is constant over time, or differs across ad hoc predetermined intervals of time is inappropriate. Instead, the early to mid 1990's seems to be the primary area whereby there are significant changes in the relationship across countries. Specifically, volatility negatively impacted growth for developed nations around this time, while it positively impacted growth for developing nations--the latter happening a few years later than the former. The second finding is that the positive impact that trade had on the growth/volatility relationship for developing countries during this period is outweighed by the negative impact of gross capital flows. Among developed nations, globalization reduces a negative effect that gross capital flows has on the relationship. For policy and constituency appeasement purposes the former is an argument for caution when entering into the global economy, and the latter an argument to embrace it.

Suggested Citation

  • Edwards Jeffrey A, 2007. "Dynamics of the Cross-Country Growth/Volatility Relationship," Global Economy Journal, De Gruyter, vol. 7(2), pages 1-20, June.
  • Handle: RePEc:bpj:glecon:v:7:y:2007:i:2:n:4
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    Citations

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    Cited by:

    1. Frederick van der Ploeg & Steven Poelhekke, 2007. "Volatility, Financial Development and the Natural Resource Curse," Economics Working Papers ECO2007/36, European University Institute.
    2. Syed Jawaid & Abdul Waheed, 2011. "Effects of Terms of Trade and its Volatility on Economic Growth: A Cross Country Empirical Investigation," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(2), pages 217-229, December.
    3. Edwards, Jeffrey A. & Kasibhatla, Krishna, 2009. "Dynamic heterogeneity in cross-country growth relationships," Economic Modelling, Elsevier, vol. 26(2), pages 445-455, March.
    4. Jeffrey A. Edwards & Alfredo A. Romero & Zagros Madjd-Sadjadi, 2016. "Foreign direct investment, economic growth, and volatility: a useful model for policymakers," Empirical Economics, Springer, vol. 51(2), pages 681-705, September.
    5. Jeffrey Edwards & Frank Thames, 2010. "Growth volatility and the interaction between economic and political development," Empirical Economics, Springer, vol. 39(1), pages 183-201, August.
    6. Bisio, Laura & Ventura, Luigi, 2012. "Growth and volatility reconsidered: reconciling opposite views," MPRA Paper 35937, University Library of Munich, Germany.
    7. EDWARDS, Jeffrey, 2009. "Trading Partner Volatility And The Ability For A Country To Cope: A Panel Gmm Model, 1970-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).

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