How Do Trade and Financial Integration Affect the Relationship Between Growth and Volatility?

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 t...

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Bibliographic Details
Main Author: Prasad, Eswar
Other Authors: Kose, Ayhan, Terrones, Marco
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2005
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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300 |a 38 pages 
653 |a Capital flows 
653 |a Trade integration 
653 |a Capital movements 
653 |a Finance: General 
653 |a Financial Aspects of Economic Integration 
653 |a International economics 
653 |a Finance 
653 |a Trade Policy 
653 |a Financial integration 
653 |a General Financial Markets: General (includes Measurement and Data) 
653 |a Macroeconomics 
653 |a International Investment 
653 |a Trade liberalization 
653 |a International finance 
653 |a Production 
653 |a Exports and Imports 
653 |a International Trade Organizations 
653 |a Commercial policy 
653 |a Macroeconomics: Production 
653 |a International economic integration 
653 |a Production growth 
653 |a Long-term Capital Movements 
653 |a Economic theory 
700 1 |a Kose, Ayhan 
700 1 |a Terrones, Marco 
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520 |a 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 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 significant, result for the interaction of financial integration with volatility