Sample Essay

The third section focuses on research studies about positive relationship – economic growth rises as business cycle becomes more volatile (Mills 1999). Results for this association were obtained by both Caporale and McKiernan (1996) using UK data for the period 1948-1991 and Blackburn (1999) who used endogenous growth theory[1]. It was shown that stable, permanent economic growth might be caused by temporary shocks such as advances in technology or improved labour skills. Moreover, as Blackburn states, stable cyclical fluctuations might be caused by the trade-off between short-term stabilisation and long-term growth (1999). Finally – Mills, who suggest visualisation as study of approach.

The fourth part of the third concept is of negative relationship. Macri and Sinha (2000) in the case of Australia refer to it. Their mean equation states that the growth rate of GDP is negatively related to the conditional standard deviation; therefore, output volatility (economic growth fluctuations) causes growth to decrease. Meanwhile, Turnovsky and Chattopadhyay (2002) explore this relationship in the developing countries and find that these countries face higher volatility which in turn causes higher harm to growth. Moreover, Henry and Olekans (2002) showed that GDP volatility is the highest when the economy is contracting. After recession the economy makes expansion but its speed is reduced by uncertainty in output. This uncertainty is the negative influence of recession. Therefore producers cannot trust the future in this period.

[1] Endogenous growth theory states that the rate of invention and technological development depends on economic institutions and the role of government – Sloman J. 2007.

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