Working Paper: NBER ID: w15225
Authors: Craig Burnside; Alexandra Tabova
Abstract: We reconsider the empirical links between volatility and growth between 1970 and 2007. There is a strong and significant correlation between individual country growth rates and global factors that are arguably exogenous with respect to their economies. The amount of volatility driven by these external factors is highly correlated, cross-sectionally, with the overall amount of volatility in GDP growth. There is also a strong correlation between a country's average growth rate and the magnitude and sign of its exposure to global factors. We interpret our findings as a partial answer to the question "Why doesn't capital flow from rich to poor countries?" We argue that low-income countries that grow slowly are riskier from the perspective of the marginal international investor.
Keywords: risk; volatility; growth; global factors
JEL Codes: E32; E44; F21; F43; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. GDP growth (O49) | individual country growth rates (O57) |
| U.S. interest rates (E43) | individual country growth rates (O57) |
| commodity prices (Q02) | individual country growth rates (O57) |
| exposure to global risk factors (F65) | economic volatility (E32) |
| economic volatility (E32) | individual country growth rates (O57) |
| positive exposure to U.S. interest rates (E43) | growth rate (O40) |
| low-income country risk perception (F34) | capital flow from rich to poor countries (F21) |