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May/June 2010, 
Vol. 92, No. 3
Posted 2010-05-03

Institutional Causes of Output Volatility

by Levon Barseghyan and Riccardo DiCecio

The authors investigate the relationship between the quality of institutions and output volatility. Using instrumental variable regressions, they address whether higher entry barriers and lower property rights protection lead to higher volatility. They find that a 1-standard-deviation increase in entry costs increases the standard deviation of output growth by roughly 40 percent of its average value in the sample. In contrast, property rights protection has no statistically significant effect on volatility.