Risk and Growth: Theoretical Relationships and Preliminary Estimates for South Africa

Russel Cooper and Kieran P. Donaghy
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Kieran P. Donaghy: Cornell University

Chapter 17 in Globalization and Regional Economic Modeling, 2007, pp 417-464 from Springer

Abstract: Abstract The issue of the costs of economic instability relative to the costs of reduced growth is one which has created considerable controversy both politically and amongst the ranks of economists. The publication of Lucas’s (1987) calculations, which claimed to show an enormous relative welfare benefit in favor of promoting growth rather than stability, has been accepted in some quarters as a strong justification for small government. On the other hand, a significant but much less influential rearguard action continues to be fought. At the level of macroeconomic research, Ramey and Ramey (1995) present evidence on a negative link between volatility and growth. They conclude that: “..... by assuming no interaction between volatility and growth, the theoretical business cycle and growth literatures omit important elements. These omissions can lead to questionable conclusions, such as Lucas’s (1987) calculation of the potential benefits of eliminating business-cycle volatility.” (Ramey and Ramey (1995) p. 1148).

Keywords: Risk Aversion; Capital Stock; Real Exchange Rate; Risk Premium; Representative Agent (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/978-3-540-72444-5_17

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