Growth and Volatility

This paper has two objectives. First, to establish empirically a U-shaped relation between GDP growth rate and income volatility. The backward as well as the fast-growing countries have had extensive volatility; but developed nations by contrast have enjoyed much more stable income. Second, to prese...

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Bibliographic Details
Main Author: LEUNG, Hing-Man
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2002
Subjects:
Online Access:https://ink.library.smu.edu.sg/soe_research/695
https://ink.library.smu.edu.sg/context/soe_research/article/1694/viewcontent/growthandvolatility.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:This paper has two objectives. First, to establish empirically a U-shaped relation between GDP growth rate and income volatility. The backward as well as the fast-growing countries have had extensive volatility; but developed nations by contrast have enjoyed much more stable income. Second, to present a macroeconomic model to study how growth and volatility evolve together. The twin endogenous variables are financial liberalization interacting with liquidity constraints. Opening LDC financial markets could raise or lower their long-term income and growth rates, depending on the severity of existing liquidity constraints. Financial liberalization and removing financial market imperfections unambiguously worsen income volatility.