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Does uncertainty affect economic growth? An empirical analysis

  • Robert Lensink
  • Hong Bo
  • Elmer Sterken

This paper investigates the effect of uncertainty on economic growth. We construct measures of export uncertainty, government policy uncertainty and price uncertainty to augment a growth model, and using econometric techniques we test for robustness of the effects of these measure on economic growth in a cross-section of 138 developing and developed economies during 1970-1995. The result clearly shows a robust and negative effect of uncertainty on economic growth. These results underline the importance of export stability and policy credibility.

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Article provided by Springer in its journal Weltwirtschaftliches Archiv.

Volume (Year): 135 (1999)
Issue (Month): 3 (September)
Pages: 379-396

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Handle: RePEc:spr:weltar:v:135:y:1999:i:3:p:379-396
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  1. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers 629, Yale - Economic Growth Center.
  2. Vivek Ghosal & Prakash Loungani, 2000. "The Differential Impact of Uncertainty on Investment in Small and Large Businesses," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 338-343, May.
  3. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
  4. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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  6. Leahy, John V & Whited, Toni M, 1996. "The Effect of Uncertainty on Investment: Some Stylized Facts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(1), pages 64-83, February.
  7. Bo, Hong & Sterken, Elmer, 2002. "Volatility of the interest rate, debt and firm investment: Dutch evidence," Journal of Corporate Finance, Elsevier, vol. 8(2), pages 179-193, March.
  8. Ghosal, Vivek, 1995. "Input Choices under Price Uncertainty," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 142-58, January.
  9. Andrew B. Abel & Janice C. Eberly, . "A Unified Model of Investment Under Uncertainty," Rodney L. White Center for Financial Research Working Papers 14-93, Wharton School Rodney L. White Center for Financial Research.
  10. Peeters, Marga, 1997. "Does demand and price uncertainty affect Belgian and Spanish corporate investment?," MPRA Paper 23604, University Library of Munich, Germany.
  11. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
  12. Nouriel Roubini & Xavier Sala-i-Martin, 1991. "Financial Repression and Economic Growth," NBER Working Papers 3876, National Bureau of Economic Research, Inc.
  13. Aymo Brunetti & Beatrice Weder, 1998. "Investment and institutional uncertainty: A comparative study of different uncertainty measures," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 134(3), pages 513-533, September.
  14. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
  15. Aizenman, Joshua & Marion, Nancy P. & Marion, Nancy P., 1993. "Macroeconomic uncertainty and private investment," Economics Letters, Elsevier, vol. 41(2), pages 207-210.
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