Nonlinear Volatility Effects on Growth in Developing Economies

The empirical fact prompts a negative relation between economic volatility and output growth in developing countries. Nevertheless, some authors found that economic volatility is further characterized by crisis volatility rather than by regular fluctuations around a trend. Thus, in this study we estimate a threshold model in a panel data technique put out by Hansen (1999) in a sample of 38 developing countries from 1960 to 2000. We find a nonlinear effect between volatility and growth since volatilities superior to 5.1% seem to have significant and negative effect on growth and volatilities inferior to 5.1% don't have significant effect.