Interaction Effects in the Relationship Between Growth and Finance

Philippe Aghion, Harvard University

Abstract

This paper analyzes how interacting financial development with initial income, macroeconomic volatility and policy variables, can improve our understanding of convergence and divergence across countries, and also restore the significance of correlations between growth and volatility and therefore between growth and macropolicy, even when controlling for country fixed effects or when eliminating countries with extreme policies or bad institutions.

Recommended Citation

Aghion, Philippe (2006) "Interaction Effects in the Relationship Between Growth and Finance," Capitalism and Society: Vol. 1 : Iss. 1, Article 2.
Available at: http://www.bepress.com/cas/vol1/iss1/art2

Discussion and Commentary

Robert M. Solow, Massachusetts Institute of Technology, Comments on Papers by Saint-Paul, Aghion, and Bhidé (May 2006)