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Title:How do trade and financial integration affect the relationship between growth and volatility? PDF Logo
Authors:Kose, M. Ayhan
Prasad, Eswar S.
Terrones, Marco E.
Issue Date:2006
Series/Report no.:IZA Discussion Papers 2252
Abstract:The influential work of Ramey and Ramey (1995) 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 dataset, 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 the estimated coefficient on the interaction between volatility and trade integration is significantly positive. We find a similar, although less significant, result for the interaction of financial integration with volatility.
Subjects:globalization
international trade and financial linkages
macroeconomic volatility and growth
JEL:F41
F36
F15
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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