The Role of Relative Price Volatility in the Efficiency of Investment Allocation
Eduardo Cavallo (),
Arturo Galindo (),
Alejandro Izquierdo () and
John León Díaz ()
No 4682, Research Department Publications from Inter-American Development Bank, Research Department
This paper estimates the impact of relative price volatility on sector-level investment allocation using a panel of 65 countries with data for 26 manufacturing industries over the period 1985-2003. Results indicate that volatility distorts efficient investment allocation in that investment is not necessarily devoted to relatively more productive sectors, especially in emerging market economies that are highly exposed and may lack the necessary institutions to deal with it successfully. This is evidence in support of theories suggesting that relative price volatility provides incentives for entrepreneurs to adopt more “malleable” but less productive production technologies, enabling them to accommodate more easily abrupt and frequent changes in relative prices, but at the cost of using less productive technologies.
Keywords: Sector-level TFP; Relative price volatility; Investment allocation; Financial crises; Emerging markets; Malleable technologies (search for similar items in EconPapers)
JEL-codes: D24 E22 L60 O31 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
http://www.iadb.org/research/pub_hits.cfm?pub_id=I ... me=pubIDB-WP-208.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.iadb.org/research/pub_hits.cfm?pub_id=IDB-WP-208&pub_file_name=pubIDB-WP-208.pdf [301 Moved Permanently]--> https://www.iadb.org/research/pub_hits.cfm?pub_id=IDB-WP-208&pub_file_name=pubIDB-WP-208.pdf)
Journal Article: The role of relative price volatility in the efficiency of investment allocation (2013)
Working Paper: The Role of Relative Price Volatility in the Efficiency of Investment Allocation (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:idb:wpaper:4682
Access Statistics for this paper
More papers in Research Department Publications from Inter-American Development Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().