A new look at the effects of export instability on investment and growth

This paper is concerned with the effects of export instability on investment and growth. It is shown that past cross-sectional empirical studies on the effects of export instability (either in prices or in value terms) used an incorrect measure of instability that does not properly take account of the share of exports in GDP. Using a new instability index and a broad set of conditioning variables, it is shown that export instability was positively associated with investment but negatively associated with growth in a large sample of countries during the period from the early 1970s to the mid 1980s.