Cross-Country Evidence on the Link Between Volatility and Growth

Garey Ramey, Valerie A. Ramey

NBER Working Paper No. 4959
Issued in December 1994
NBER Program(s):   EFG   IFM   EFG

This paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations. In a sample of 92 countries as well as a sample of OECD countries, we find that countries with higher volatility have lower growth. The addition of standard control variables strengthens the negative relationship. We also find that government spending-induced volatility is negatively associated with growth even after controlling for both time- and country-fixed effects.

(292 K)

Published: American Economic Review, 85 (December 1995): 1138-1151

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