Volatility and Growth: An Explanation for the Disagreement

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dc.contributor.authorJetter, Michael
dc.coverage.spatialMedellín de: Lat: 06 15 00 N degrees minutes Lat: 6.2500 decimal degrees Long: 075 36 00 W degrees minutes Long: -75.6000 decimal degreeseng
dc.creator.emailmjetter7@gmail.comspa
dc.creator.emailmjetter@eafit.edu.cospa
dc.date.accessioned2013-07-11T21:28:03Z
dc.date.available2013-07-11T21:28:03Z
dc.date.issued2013-06-26
dc.description.abstractThis paper reconsiders the e_ects of volatile growth rates on growth itself. I show that the underlying endogeneity of government size can hide the net growth e_ects from volatility. There exists a positive direct and a negative indirect channel, with the latter operating through the size of the public sector. Risk-averse citizens respond to volatility either with precautionary savings (direct e_ect) or by demanding a stronger public safety net, which in turn lowers growth (indirect e_ect). However, the indirect channel is only available if the political regime allows citizens to determine their desired level of public services. I test this theory on a balanced panel of 95 countries from 1960 { 2010. The paper reveals the latent endogeneity of government size in a single growth equation framework and o_ers a simultaneous estimation method as an alternative. Results support the existence of both effects. The direct channel is stronger in autocratic societies, but as a country turns to democracy the indirect channel dominates. Volatility has a positive net e_ect on growth in autocratic nations, but a negative net effect in democratic societies. This finding explains why previous growth analyses of volatility at times reached contradicting conclusions.eng
dc.identifier.jelE32
dc.identifier.jelH11
dc.identifier.jelO40
dc.identifier.urihttp://hdl.handle.net/10784/995
dc.language.isoengeng
dc.publisherUniversidad EAFITspa
dc.publisher.departmentEscuela de Economía y Finanzasspa
dc.rights.accessrightsinfo:eu-repo/semantics/openAccesseng
dc.rights.localAcceso abiertospa
dc.subject.keywordVolatilityeng
dc.subject.keywordBusiness Cycleseng
dc.subject.keywordEconomic Growtheng
dc.titleVolatility and Growth: An Explanation for the Disagreementeng
dc.typeworkingPapereng
dc.typeinfo:eu-repo/semantics/workingPapereng
dc.type.hasVersiondrafteng
dc.type.localDocumento de trabajo de investigaciónspa

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