Terms-of-trade uncertainty and economic growth

This paper examines a stochastic endogenous growth model in which terms-of-trade uncertainty affects savings and growth. The model explains the well-known positive link between growth and the mean rate of change of terms of trade, and predicts also that terms-of-trade variability affects growth. Inc...

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Bibliographic Details
Published inJournal of development economics Vol. 54; no. 2; pp. 323 - 356
Main Author Mendoza, Enrique G.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.12.1997
Elsevier
North-Holland Pub. Co
Elsevier Sequoia S.A
SeriesJournal of Development Economics
Subjects
Development economics
Economic growth
Economic models
Growth
Growth models
Savings
Stochastic models
Studies
Terms of trade
Uncertainty
Volatility
F41
Savings
Uncertainty
F43
Terms of trade
Growth
Volatility
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Summary:This paper examines a stochastic endogenous growth model in which terms-of-trade uncertainty affects savings and growth. The model explains the well-known positive link between growth and the mean rate of change of terms of trade, and predicts also that terms-of-trade variability affects growth. Increased terms-of-trade variability results in faster or slower growth depending on the degree of risk aversion, but in either case it reduces social welfare. These growth effects imply that welfare costs of macroeconomic uncertainty are much larger than first thought. Cross-country panel regressions provide strong support for the model's key predictions.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-3878
1872-6089
DOI:10.1016/S0304-3878(97)00046-1