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Examining GDP Growth and Its Volatility: An Episodic Approach
Jakub Bartak1, Łukasz Jabłoński2, Agnieszka Jastrzębska3
1Department of Process Management, Cracow University of Economics, ul. Rakowicka 27, 31-510 Kraków, Poland.
Entropy (Basel, Switzerland)
|August 6, 2021
Summary
Economic growth is often slower in volatile economies. While international trade boosts growth, it also increases volatility, whereas human capital enhances both growth and stability.
Area of Science:
- Economics
- Econometrics
- Economic History
Background:
- Economic growth and volatility are key macroeconomic indicators.
- Understanding the episodic nature of economic performance is crucial for policy.
- Previous studies have not fully explored the relationship between growth, volatility, and their determinants from an episodic perspective.
Purpose of the Study:
- To apply a genetic algorithm for detecting structural breaks in GDP per capita time series.
- To segment economic history into distinct episodes based on growth rate means and volatility.
- To analyze the determinants of economic growth under different volatility regimes.
Main Methods:
- Utilizing a genetic algorithm to identify shifts in time series volatility and levels.
- Applying the algorithm to GDP per capita data to detect structural breaks.
- Econometric analysis to investigate the relationship between volatility and growth determinants.
Main Results:
- A negative relationship exists between economic volatility and economic growth.
- International trade is found to promote growth but increase volatility.
- Human capital is associated with higher growth and greater economic stability.
- Financial development is linked to reduced volatility but has a negative correlation with growth.
Conclusions:
- Economic growth and volatility are not constant but occur in distinct episodes.
- Policies aimed at promoting growth must consider their impact on economic stability.
- Human capital appears to be a key driver of stable economic growth.
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