Volatility and Investment: Interpreting Evidence from Developing Countries

1999/05/01 by Joshua Aizenman, Nancy Marion, Nancy Peregrim Marion · 4 citations
Economics, Econometrics and Finance · #Fiscal Policy and Economic Growth #Housing Market and Economics #Monetary Policy and Economic Impact

paper · doi:10.1111/1468-0335.00163

Abstract

We uncover a significant negative correlation between various volatility measures and private investment in developing countries, even when adding the standard control variables. No such correlation is uncovered when the investment measure is the sum of private and public investment spending. Indeed, public investment spending is positively correlated with some measures of volatility. These findings suggest that the detrimental impact of volatility on investment may be easier to detect using disaggregated data. We provide several possible interpretations for our findings. Nonlinearities in preferences or budget constraints can cause volatility to have first‐order negative effects on private investment.

Citations

• A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity

Cited by

• Natural Resources: Curse or Blessing?
• Employment growth in the face of exchange rate uncertainty: The role of trade and foreign equity finance
• Volatility and the natural resource curse
• Impact of geopolitical risk on green international technology spillovers: FDI and import channels. [europepmc]

Related

• Financial Variables Effect on the U.S. Gross Private Domestic Investment (GPDI) 1959-2001
• Macroeconomic Volatility and Welfare in Developing Countries: An Introduction
• Volatility and the natural resource curse
• Volatility Depends on Market Trades and Macro Theory
• A comprehensive look at financial volatility prediction by economic variables