How do trade and financial integration affect the relationship between growth and volatility?

International Monetary Fund, Research Department, Washington, DC 20431, United States
Journal of International Economics 03/2005; DOI: 10.1016/j.jinteco.2005.05.009
Source: RePEc

ABSTRACT The influential work of Ramey and Ramey [Ramey, G., Ramey, V.A., 1995. Cross-country evidence on the link between volatility and growth. American Economic Review 85, 1138–1151 (December).] highlighted an empirical relationship that has now come to be regarded as conventional wisdom—that output volatility and growth are negatively correlated. We reexamine this relationship in the context of globalization—a term typically used to describe the phenomenon of growing international trade and financial integration that has intensified since the mid-1980s. Using a comprehensive new data set, we document that, while the basic negative association between growth and volatility has been preserved during the 1990s, both trade and financial integration significantly weaken this negative relationship. Specifically, we find that, in a regression of growth on volatility and other controls, the estimated coefficient on the interaction between volatility and trade integration is significantly positive. We find a similar, although less robust, result for the interaction of financial integration with volatility.

  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Social protection is absent from the Millennium Development Goals (MDGs), and only recently has gained some prominence in the post-2015 discourse. In the past quarter century, however, rising inequality has often accompanied economic growth. At the same time, the growing importance of risk and vulnerability on the wellbeing of the poor has been recognized. Further, there is now a consensus on adopting more ambitious goals on poverty reduction. Defining social protection as a collection of programs that address risk, vulnerability, inequality and poverty through a system of transfers in cash or in kind, this paper argues that social protection needs to be on the post-2015 agenda as a key element of the discourse. It provides an empirical overview of social protection around the world based on the World Bank's Atlas of Social Protection: Indicators of Resilience and Equity (ASPIRE) data set. Focusing on the goal of ending poverty, the paper estimates that social protection programs are currently preventing 150 million people from falling into poverty. Based on the data set, the paper develops, tentatively and for discussion, a set of candidate goals, indicators and targets for the acceleration of poverty reduction through social protection. The authors ask what it would take for social protection programs to contribute to halving the poverty gap in a country. They show that if all countries could achieve the actual poverty reduction efficiency already observed in the top quartile of countries, then 70 percent of the countries in the sample could achieve this goal. However, for 30 percent of the countries, even reaching the top quartile on efficiency will not be enough -- for these countries, the issue is one of budgetary adequacy.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Many contributions in the recent literature have investigated over the relationship between growth and its volatility without getting a clear and unambiguous answer. Besides reassessing the well-known effect of output volatility on growth as benchmark analysis, this study aims at looking into the "black box" of the business cycle volatility by disentangling the impacts of volatility of GDP major components - i.e. private consumption, private investment and government expenditure - on growth, simultaneously considered. Our empirical analysis unveils a remarkably robust and strong negative correlation of consumption volatility with mean growth, and a positive one with volatility of investment and of public expenditure. If these findings shed some additional light on the (still controversial) relationship between economic fluctuations and growth, they also make it possible to compare the relative impact of each component, with possibly relevant policy implications. Importantly, this might reconcile opposite views about the issue, in that different empirical results might originate from the relative importance across empirical studies of the various components of volatility.
  • Source
    Dataset: j93592 3

Full-text (4 Sources)

Available from
May 16, 2014