Volatility and the Investment Response

Joshua Aizenman and Nancy Marion ()

No 5841, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use the World Bank decomposition of aggregate investment shares into their private and public components to test for the correlation between volatility and investment in a set of developing countries. We uncover a statistically significant negative correlation between various volatility measures and private investment, even when adding the standard control variables. No such correlation is uncovered when the investment measure is the sum of private and public investment spending. Indeed, public investment spending is positively correlated with some measures of volatility. We also use the new World Bank data to redo the Ramey and Ramey (1995) test for a correlation between investment and the standard deviation of innovations to a forecasting equation for growth. While Ramey and Ramey found no significant correlation using aggregate investment data, we find a negative and highly significant relationship between innovation volatility and private investment in developing countries. These findings suggest that the detrimental impact of volatility on investment may be difficult to detect using aggregate data.

JEL-codes: E2 F21 (search for similar items in EconPapers)
Date: 1996-11
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published as (Published as "Volatility and Investment") Economica, Vol. 66 (1999): 157-179.

Downloads: (external link)
http://www.nber.org/papers/w5841.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:5841

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w5841

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().