Policy Volatility and Growth

Mark Gradstein and Alberto Chong

No 1592, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: A growing body of recent macroeconomic evidence suggests that volatility is detrimental to economic growth. The channels through which volatility affects growth, however, are less clear; substantive evidence based on disaggregate data is almost non-existent. This paper offers a framework in which policy volatility has an adverse effect on firms' entry into productive industries, thereby affecting economic growth. Empirical support for this relationship is based on a detailed dataset of thousands of firms from some 80 countries. Additional evidence is provided on the channels through which volatility affects firm growth, showing that institutional obstacles magnify the effect.

Keywords: WP-578 (search for similar items in EconPapers)
Date: 2006-08
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Citations: View citations in EconPapers (2)

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Working Paper: Policy Volatility and Growth (2006)
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