Accounting for regional variance heterogeneity of growth

Jeffrey Edwards, Ronald Gilbert and Juan Sherwell

Applied Economics, 2010, vol. 42, issue 28, 3585-3596

Abstract: This article explores heterogeneous behaviour in the conditional variance of growth. We find that regional effects account for a good part of this behaviour when modelled alone; however, regional effects themselves have no particular meaning. To this end, we try to empirically account for the regional effects using a large set of economic, political and demographic variables. Our results indicate that countries with past high levels of both investment and inflation cause growth to be less volatile today. Countries that have a greater number of changes in heads of government tend to experience lower growth volatility except in parliamentary democracies where the relationship reverses. The greater the number of effective parties the lower the volatility for all regime types. More strikes have no effect on volatility except for presidential democracies where volatility actually increases, while more open economies that share presidential and legislative powers also have more volatile growth rates.

Date: 2010
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DOI: 10.1080/00036840802260924

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