Long-run growth and volatility: which source really matters?

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Abstract:

The aim of the article is to analyse the relationship between long-run growth and business cycle volatility. In particular, the main purpose of this article is to identify which source of volatility is most detrimental to growth. Using cross-country data from 1970 to 2000, and several indicators of volatility (such as inflation, exchange rate, government expenditure, output and investment volatility) this article shows that although, all these measures of volatility are remarkably harmful for growth, business cycle investment volatility is the main source that hampers long-run growth. This relation is robust to different measures of business cycle, and to different sub-samples of countries.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701749050

Affiliations: Department of Economics, University of Illinois at Chicago, Chicago, IL, USA,Istituto di Economia Politica, University of Palermo, Palermo, Italy

Publication date: June 1, 2010

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