Are Average Growth Rate and Volatility Related?

Chatterjee, Partha; Shukayev, Malik

doi:10.2139/ssrn.888747

Cited by 16 publications

(21 citation statements)

References 7 publications

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“…To avoid taking a stance and explore the potentially differential effects of the two shock components, we continue the empirical analysis both with and without time fixed effects. 16 The above results avoided the lag structure of the response of growth to shocks by aggregating over 5-year interval. We henceforth focus on an annual panel of 65 countries between 1960 and 2000 and extend the specification above as follows:…”

Section: Amplification Effect Of Credit Constraintsmentioning

confidence: 95%

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Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment

et al. 2005

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We examine how credit constraints affect the cyclical behavior of productivity-enhancing investment and thereby volatility and growth. We first develop a simple growth model where firms engage in two types of investment: a short-term one and a long-term productivity-enhancing one. Because it takes longer to complete, long-term investment has a relatively less procyclical return but also a higher liquidity risk. Under complete financial markets, long-term investment is countercyclical, thus mitigating volatility. But when firms face tight credit constraints, long-term investment turns procyclical, thus amplifying volatility. Tighter credit therefore leads to both higher aggregate volatility and lower mean growth for a given total investment rate. We next confront the model with a panel of countries over the period 1960-2000 and find that a lower degree of financial development predicts a higher sensitivity of both the composition of investment and mean growth to exogenous shocks, as well as a stronger negative effect of volatility on growth.

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Section: Amplification Effect Of Credit Constraintsmentioning

confidence: 95%

“…In light of these results, we use 16 A proxy for shocks more commonly used in the growth literature is changes in the terms of trade. We prefer to use commodity-price shocks because the time variation in exchange rates that enters the terms of trade calculation is largely endogenous to the business cycle.…”

Section: Amplification Effect Of Credit Constraintsmentioning

confidence: 99%

Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment

et al. 2005

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“…4 Complementary evidence is provided by Blattman, Hwang and Williamson (2004), Koren and Tenreyro (2007), and others. See, however, Chatterjee and Shukayev (2005) and Ramey and Ramey (2006) for a debate on how sensitive these findings are to the particular measurement of output growth. specifications from Ramey and Ramey (1995) in our dataset.…”

Section: Some Motivating Backgroundmentioning

confidence: 99%

“…Appendix Table 1 (WTA) to obtain commodity weights. 15 Each country-product specific weight is equal to the net exports of that commodity, divided by the country's total net exports, N X ic /N X i . Note that these weights are constant over time for a given country, but vary across countries.…”

Section: Loyaza and Beck (2000)mentioning

confidence: 99%

Volatility and growth: Credit constraints and the composition of investment

Aghion

Angeletos²,

Banerjee³

et al. 2010

Journal of Monetary Economics

511

314

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This paper examines how uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth. We develop a model where firms engage in two types of investment: a short-term one; and a long-term one, which contributes more to productivity growth. Because it takes longer to complete, long-term investment has a relatively less cyclical return; but it also has a higher liquidity risk. The first effect ensures that the share of long-term investment to total investment is countercyclical when financial markets are perfect; the second implies that this share may turn procyclical when firms face tight credit constraints.The contribution of the paper is thus to identify a novel propagation mechanism: through its effect on the cyclical composition of investment, tighter credit can lead to both higher volatility and lower mean growth. Evidence from a panel of countries provides support for the model's key predictions.JEL codes: E22, E32, O16, O30, O41, O57.

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“…Using regional data for 48 US States from 1970 to 1988, Dawson and Stephanson (1997) find a negative relationship between growth and its standard deviation but the coefficient is only significant at the 10% level. Using a similar data set, Chatterjee and Shukayev (2006) find a negative relationship between the average per capita growth rate and its standard deviation but the coefficient is only significant at the 5% level when the growth rates are calculated as log changes but are not significant based on percentage changes. Using regional data for 10 Canadian provinces from 1961 to 2000, Dejuan and Gurr (2004) find a positive but statistically insignificant relationship.…”

Section: Introductionmentioning

confidence: 89%