Does growth affect volatility? An empirical study on developing countries

Whereas economic growth and business cycles have received significant attention in the literature, they are typically examined separately. However, recent studies have found a causality in which short-term output volatility affects economic growth (volatility-growth causality). In contrast, in this study, we examine whether the opposite causality, from economic growth to short-term output volatility (growth-volatility causality), exists. The existence of volatility-growth causality does not necessarily exclude the existence of growth-volatility causality, and the two causalities may coexist. We empirically examine growth-volatility causality, and the results of our econometric analyses confirm its existence.