IDEAS home Printed from https://ideas.repec.org/p/chb/bcchwp/488.html
   My bibliography  Save this paper

Growth and Volatility in Developing Countries: The Role of Credits and Fiscal Policy

Author

Listed:
  • María Elisa Farías

Abstract

The purpose of this paper is to analyze the role of credits, R&D spending, and fiscal policy in contributing to reduce volatility, and enhance the adjustment capacity to shocks. The foregoing is especially relevant for emerging countries like Chile, which are frequently threatened by external shocks. In addition, credit market distortions are more frequent in these economies. Using an empirical analysis for a panel data of 72 countries between 1950 and 2004, we find positive correlations between credits, R&D spending, fiscal policy, and growth. On the other hand, we find negative correlations between these variables and volatility. Testing different types of models we find very robust results, suggesting that countries with more developed domestic financial markets are in better conditions to recover growth after a shock. The same is true when countries apply fiscal policies that guarantee “fiscal discipline”.

Suggested Citation

  • María Elisa Farías, 2008. "Growth and Volatility in Developing Countries: The Role of Credits and Fiscal Policy," Working Papers Central Bank of Chile 488, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:488
    as

    Download full text from publisher

    File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc488.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 195-209.
    2. Loayza, Norman V. & Ranciere, Romain, 2006. "Financial Development, Financial Fragility, and Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 1051-1076, June.
    3. Comin, Diego & Mulani, Sunil, 2009. "A theory of growth and volatility at the aggregate and firm level," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1023-1042, November.
    4. Stadler, George W, 1990. "Business Cycle Models with Endogenous Technology," American Economic Review, American Economic Association, vol. 80(4), pages 763-778, September.
    5. Alwyn Young, 1992. "A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Chapters,in: NBER Macroeconomics Annual 1992, Volume 7, pages 13-64 National Bureau of Economic Research, Inc.
    6. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-191, January.
    7. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    8. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    9. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
    10. Luca Gambetti & Jordi Galí, 2009. "On the Sources of the Great Moderation," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 26-57, January.
    11. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
    12. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2005. "The Effect of Financial Development on Convergence: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 173-222.
    13. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
    14. Fernandez, Viviana, 2006. "Does domestic cooperation lead to business-cycle convergence and financial linkages?," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(3), pages 369-396, July.
    15. Gadi Barlevy, 2004. "On the timing of innovation in stochastic Schumpeterian growth models," Working Paper Series WP-04-11, Federal Reserve Bank of Chicago.
    16. World Bank, 2007. "World Development Indicators 2007," World Bank Publications, The World Bank, number 8150, April.
    17. Solow, Robert M., 2000. "Growth Theory: An Exposition," OUP Catalogue, Oxford University Press, edition 2, number 9780195109030.
    18. Fischer, Andreas M, 1993. "Is Money Really Exogenous? Testing for Weak Exogeneity in Swiss Money Demand," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 248-258, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chb:bcchwp:488. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Claudio Sepulveda). General contact details of provider: http://edirc.repec.org/data/bccgvcl.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.