Cross-country evidence on the link between volatility and growth

This paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of-economic fluctuations. In a sample of 92 countries as well as a sample of OECD countries, we find that countries with higher volatility have lower growth. The addition of standard control variables strengthens the negative relationship. We also find that government spending-induced volatility is negatively associated with growth even after controlling for both time- and country-fixed effects.