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Macroeconomic Volatility and Economic Growth: Evidence from Selected African Countries

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  • Onyimadu, Chukwuemeka

Abstract

This paper investigates the relationship between macroeconomic volatility and long run economic growth in a panel of 40 African countries over the period 1980 – 2014. The paper re – examines the postulates of both Ramey and Ramey (1995) – where investment was the primary link between volatility and growth - and Aghion et al (2005) – where financial credit constraints was the primary link - , that there is a negative and significant correlation between macroeconomic volatility and long run economic growth. The findings in the paper refutes this negative relationship between volatility and economic growth, with the conclusion that there exist a significant and positive correlation between volatility and economic growth with reference to the sample data set used. The findings of this paper are robust to controls for investment, different and appropriate measures of financial development, level of openness, government size and each countries initial level of real per capita GDP.

Suggested Citation

  • Onyimadu, Chukwuemeka, 2016. "Macroeconomic Volatility and Economic Growth: Evidence from Selected African Countries," MPRA Paper 77200, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:77200
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    File URL: https://mpra.ub.uni-muenchen.de/77200/1/MPRA_paper_77200.pdf
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    References listed on IDEAS

    as
    1. Philippe Aghion & Diego Comin & Peter Howitt & Isabel Tecu, 2016. "When Does Domestic Savings Matter for Economic Growth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 381-407, August.
    2. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 246-265, April.
    3. Nir Jaimovich & Henry E. Siu, 2009. "The Young, the Old, and the Restless: Demographics and Business Cycle Volatility," American Economic Review, American Economic Association, vol. 99(3), pages 804-826, June.
    4. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 243-287.
    5. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    6. Patrick Guillaumont, 2010. "Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 828-854.
    7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    8. Alberto Chong & Mark Gradstein, 2009. "Volatility and firm growth," Journal of Economic Growth, Springer, vol. 14(1), pages 1-25, March.
    9. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634.
    10. Solow, Robert M, 1997. "Is There a Core of Usable Macroeconomics We Should All Believe In?," American Economic Review, American Economic Association, vol. 87(2), pages 230-232, May.
    11. Jetter, Michael, 2014. "Volatility and growth: Governments are key," European Journal of Political Economy, Elsevier, vol. 36(C), pages 71-88.
    12. Afonso, António & Furceri, Davide, 2010. "Government size, composition, volatility and economic growth," European Journal of Political Economy, Elsevier, vol. 26(4), pages 517-532, December.
    13. Shu-Chin Lin & Dong-Hyeon Kim, 2014. "The link between economic growth and growth volatility," Empirical Economics, Springer, vol. 46(1), pages 43-63, February.
    14. Patrick Guillaumont, 2010. "Assessing the Economic Vulnerability of Small Island Developing States and the Least Developed Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 46(5), pages 828-854.
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    16. Philippe Aghion & Gilles Saint-Paul, 1998. "Uncovering Some Causal Relationships Between Productivity Growth and the Structure of Economic Fluctuations: A Tentative Survey," LABOUR, CEIS, vol. 12(2), pages 279-303, July.
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    21. repec:hrv:faseco:30752799 is not listed on IDEAS
    22. Alessio Moro, 2015. "Structural Change, Growth, and Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 259-294, July.
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    More about this item

    Keywords

    Macroeconomic Volatility; Economic Growth; Financial Development; Investment;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets

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