Country Economic Memorandum for Sao Tome and Principe - Background Note 1 : Economic Growth and Volatility in São Tomé and Príncipe
The purpose of this background note is to give an overview of the literature on output volatility and economic growth, assess output volatility and its impact in São Tomé and Príncipe (STP). This note is organized in four sections, besides this int...
| Main Authors: | , |
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| Format: | Report |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/142041562906624878/Country-Economic-Memorandum-Background-Note-1-Economic-Growth-and-Volatility-in-Sao-Tome-and-Príncipe http://hdl.handle.net/10986/32137 |
| Summary: | The purpose of this background note is
to give an overview of the literature on output volatility
and economic growth, assess output volatility and its impact
in São Tomé and Príncipe (STP). This note is organized in
four sections, besides this introductory part. The second
section reviews the literature on the impact of output
volatility on economic growth. The third section discusses
different measures of volatility, calculating volatility for
STP across different periods, and compares them to peer
countries. The last section offers some policy
recommendations. Output volatility and its relationship with
growth have been a hot topic in economic research literature
for a long time. There is significant controversy about how
economic volatility1 affects economic growth. Although the
link between economic growth and volatility is theoretically
ambiguous, a negative impact of economic volatility on
output growth dominates the empirical literature. This
negative relationship also holds with newer and better
datasets, advanced econometrics methodologies, and for
specific country groups. There are three mains messages in
this note. The first one is that volatility affects growth
as supported by the literature review and the econometric
estimations carried out in this note. The second one is that
STP is a volatile country, although volatility of GDP growth
and inflation has declined over time and are in line with
peers. On the other hand, STP still faces higher volatility
on current account balances and net lending and borrowing
than its peers. The third message is that, on average, a
fifty percent increase in volatility translates into a 25
percent decrease in GDP per capita growth rates. Finally,
policy measures aimed at diversifying exports in terms of
goods and markets, reduce the reliance on external finance
and fiscal rules can help cushion the volatility and reduce
its impact. |
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