Policy Uncertainty, Persistence and Growth

Joshua Aizenman and Nancy Marion ()

Review of International Economics, 1993, vol. 1, issue 2, 145-63

Abstract: This paper explores links between policy uncertainty and growth. Using an endogenous growth model in which domestic investment is characterized by irreversibilities and policy fluctuates between a high- and a low-tax regime, it shows that the magnitude of policy fluctuation and the persistence of policy jointly determine the pattern of investment and growth. Cross-section regressions confirm that for 46 developing countries over the 1970-85 period, policy uncertainty is negatively correlated with both investment and growth. Policy persistence also plays an important role. Copyright 1993 by Blackwell Publishing Ltd.

Date: 1993
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