Volatility and investment: Interpreting evidence from developing countries

Joshua Aizenman, Nancy Marion

Research output: Contribution to journalArticlepeer-review

137 Scopus citations

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.

Original languageEnglish
Pages (from-to)157-1179
Number of pages1023
JournalEconomica
Volume66
Issue number262
DOIs
StatePublished - 1 Jan 1999
Externally publishedYes

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