I investigate the relationship between short-term instability and output growth in the European regions, using disaggregated data for six manufacturing activities over the period 1980–2006. The results show a positive link between sectoral volatility and growth. This finding is robust to the inclusion of additional explanatory variables in the analysis and is not driven by any specific sector or country. The observed relationship suggests that traditional stabilization policies that attempt to reduce the fluctuations of the business cycle may be harmful for regional growth in the long run.
Get full access to this article
View all access options for this article.
References
1.
AghionPHowittP, 1998Endogenous Growth Theory (MIT Press, Cambridge, MA)
2.
AghionPSaint-PaulG, 1998, “Virtues of bad times: Interaction between productivity growth and economic fluctuations”Macroeconomic Dynamics2322–344
3.
AizenmanJMarionN, 1993, “Policy uncertainty, persistence and growth”Review of International Economics1145–163
4.
AngerizAMcCombieJRobertsM, 2006, “Productivity, efficiency and technological change in European Union regional manufacturing: A data envelopment analysis approach”The Manchester School74500–525
5.
BarroRSala-i-MartinX, 1995Economic Growth (McGraw-Hill, New York)
6.
BernankeB S, 1983, “Irreversibility, uncertainty, and cyclical investment”Quarterly Journal of Economics9885–106
7.
BeugelsdijkSVan SchaikT, 2005, “Differences in social capital between 54 Western European regions”Regional Studies391053–1064
8.
BlackF, 1987Business Cycles and Equilibrium (Basil Blackwell, New York)
9.
BrülhartMCrozetMKoenigP, 2004, “Enlargement and the EU periphery: The impact of changing market potential”World Economy27853–875
10.
CaporaleTMcKiernanB, 1996, “The relationship between output variability and growth: Evidence from post war UK data”Scottish Journal of Political Economy43229–236
11.
CaporaleTMcKiernanB, 1998, “The Fischer–Black hypothesis: Some time-series evidence”Southern Economic Journal64765–771
12.
ChatterjeePShukayevM, 2006, “Are average growth and volatility related?”, WP 2006–74, Bank of Canada, Ottawa
13.
ConleyT G, 1999, “GMM estimation with cross sectional dependence”Journal of Econometrics921–45
14.
CrescenziRRodríguez-PoseA, 2008, “Infrastructure endowment and investment as determinants of regional growth in the EU”EIB Papers1363–101
15.
DawsonJ WStephensonE F, 1997, “The link between volatility and growth: Evidence from the States”Economics Letters55365–369
16.
DejuanJGurrS, 2004, “On the link between volatility and growth: Evidence from Canadian Provinces”Applied Economics Letters11279–282
17.
European Commission, 2007Fourth Report on Economic and Social Cohesion: Growing Regions, Growing Europe (Office for Official Publications of the European Communities, Luxembourg)
18.
EzcurraR, 2009, “Does income polarization affect economic growth? The case of the European regions”Regional Studies43267–285
19.
FagerbergFVerspagenBCaniëlsM, 1997, “Technology, growth and unemployment across European regions”Regional Studies31457–466
20.
FalkMSinabellF, 2009, “A spatial econometric analysis of the regional growth and volatility in Europe”Empirica36193–207
21.
FatásA, 2002, “The effects of business cycles on growth”, in Economic Growth: Sources, Trends and Cycles Eds LoayzaN, SotoR (Central Bank of Chile, Santiago) pp 191–219
22.
FingletonBLópez-BazoE, 2006, “Empirical growth models with spatial effects”Papers in Regional Science85177–199
23.
GilCPascualPRapúnM, 2002, “Structural change, infrastructure and convergence in the regions of the European Union”European Urban and Regional Studies9115–135
24.
GrierK BTullockG, 1989, “An empirical analysis of cross-national economic growth, 1951–1980”Journal of Monetary Economics24259–276
25.
ImbsJ, 2007, “Growth and volatility”Journal of Monetary Economics541848–1862
26.
KormendiR CMeguireP G, 1985, “Macroeconomics determinants of growth: Cross-country evidence”Journal of Monetary Economics16141–163
27.
KrugmanP, 1998, “What's new about the new economic geography?”Oxford Review of Economic Policy147–17
28.
KydlandFPrescottE, 1982, “Time to build and aggregate fluctuations”Econometrica501345–1370
29.
Le GalloJDall'erbaS, 2008, “Spatial and sectoral productivity convergence between European regions, 1975–2000”Papers in Regional Science87505–525
30.
Le GalloJErturC, 2003, “Exploratory spatial data analysis of the distribution of regional per capita GDP in Europe, 1980–1995”Papers in Regional Science82175–201
NorrbinS CYigitPinar F, 2005, “The robustness of the link between volatility and growth of the output”Review of World Economics141343–356
39.
PaciRPigliaruF, 1999, “European regional growth: Do sectors matter?”, in Economic Growth and Change: Regional and National Patterns of Convergence and Divergence Eds AdamsJ, PaciR (McGraw-Hill, Cheltenham, Glos) pp 213–235
40.
PindyckR S, 1991, “Irreversibility, uncertainty, and investment”Journal of Economic Literature291110–1148
41.
RameyGRameyV A, 1991, “Technology commitment and the cost of economic fluctuations”, WP 3755, National Bureau of Economic Research, Cambridge, MA
42.
RameyGRameyV A, 1995, “Cross-country evidence on the link between volatility and growth”American Economic Review851138–1151
43.
Rodríguez-PoseA, 1998The Dynamics of Regional Growth in Europe: Social and Political Factors (Clarendon, Oxford)
44.
Rodríguez-PoseA, 1999, “Convergence or divergence? Types of regional responses to socioeconomic change in Western Europe”Tijdschrift voor Economische en Sociale Geografie90363–378
45.
Rodríguez-PoseAFratesiU, 2004, “Between development and social policies: The impact of European Structural Funds in Objective 1 regions”Regional Studies3897–113
46.
Rodríguez-PoseAVilalta-BufiM, 2005, “Education, migration, and job satisfaction: The regional returns of human capital in the EU”Journal of Economic Geography5545–566
47.
Sala-i-MartinXDoppelhoferGMillerR I, 2004, “Determinants of long-term growth: A Bayesian averaging of classical estimates, (BACE) approach”American Economic Review94813–835
48.
SchumpeterJ A, 1939Business Cycles (McGraw-Hill, New York)
49.
SpeightA E, 1999, “UK output volatility and growth: Some further evidence”Scottish Journal of Political Economy46175–184
