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Reexamining the link between instability and growth in Latin America: A dynamic panel data estimation using k-median clusters

Cecilia Bermúdez, Carlos D. Dabús and Germán González

Latin American Journal of Economics-formerly Cuadernos de Economía, 2015, vol. 52, issue 1, 1-23

Abstract: We estimate a dynamic panel data model to assess the relationship between different levels of instability—proxied by growth volatility and inflation— and growth in Latin America from 1960 to 2011. Outlying observations could be mistakenly treated as thresholds or regime switch. Hence we use k-median clustering to mitigate the outlier problem and properly identify “scenarios” of instability. Our key findings are that while high inflation is harmful, low inflation is in fact positively related to growth. Volatility is also found to be significant and negative, but with no differential effect— between low and high levels—on growth.

Keywords: instability; growth; Latin America; clustering (search for similar items in EconPapers)
JEL-codes: C33 F43 O41 (search for similar items in EconPapers)
Date: 2015
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Latin American Journal of Economics-formerly Cuadernos de Economía is currently edited by Raimundo Soto

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Handle: RePEc:ioe:cuadec:v:52:y:2015:i:1:p:1-23