Policy Volatility and Growth

Alberto Chong and Mark Gradstein

No 4481, Research Department Publications from Inter-American Development Bank, Research Department

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.

Date: 2006-08
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Citations: View citations in EconPapers (3)

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Working Paper: Policy Volatility and Growth (2006)
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