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Policy Volatility and Growth

  • Alberto Chong

    ()

  • Mark Gradstein

A growing body of recent macroeconomic evidence suggests that volatility is detrimental to economic growth. The channels through which volatility affects growth, however, are less clear; substantive evidence based on disaggregate data is almost non-existent. This paper offers a framework in which policy volatility has an adverse effect on firms` entry into productive industries, thereby affecting economic growth. Empirical support for this relationship is based on a detailed dataset of thousands of firms from some 80 countries. Additional evidence is provided on the channels through which volatility affects firm growth, showing that institutional obstacles magnify the effect.

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File URL: http://www.iadb.org/research/pub_hits.cfm?pub_id=WP-578&pub_file_name=pubWP-578.pdf
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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4481.

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Date of creation: Aug 2006
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Handle: RePEc:idb:wpaper:4481
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  16. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
  17. Beck, Thorsten & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2002. "Financial and legal constraints to firm growth - Does size matter?," Policy Research Working Paper Series 2784, The World Bank.
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