Growth and Volatility

• Main Author: LEUNG, Hing-Man
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2002
• Subjects: Growth and Development; Macroeconomics
• 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
• Institution: Singapore Management University

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.