Essays on Volatility, Growth and Development: Evidence from China

This thesis consists of three essays, and discusses several issues about volatility, growth and development in the context of the Chinese economy.;The first essay intends to answer the following questions: "Has China's economic growth become less volatile in the reform period?" and if it is the case, "What are the sources behind the increasing macroeconomic stability?" The answer to the first question is yes. Using the quarterly data of China, this paper provides robust evidence of the existence of a structural break or regime shift in the variance of the GDP growth process (most likely in 1992 and 1993). Employing decomposition methods from different perspectives, this essay attributes the significant decline in aggregate output volatility to the following factors: the increasing stability of labor productivity growth and TFP growth at the aggregate level, the declined volatility of value-added growth at the sectoral level, the increasing stability of consumption growth and investment growth from the demand side, and the decrease in the covariances between provincial growth contributions from the regional economic perspective.;The second essay attempts to examine the underlying factors accounting for the volatility of China's economic growth. It particularly highlights the role of investment policy volatility in explaining output volatility. The results suggest that investment policy volatility amplifies the growth volatility, whereas fiscal policy volatility has no significant effect. Government size and investment share have opposite, albeit not always significant, influences on growth volatility. The main findings are robust to the inclusion of additional controls, the substitution of initial values for the mean values of control variables, and the alternative estimation specifications of policy volatilities. It suggests that the decline in investment policy volatility accounts for a significant part of the increasing stability of China's economic growth, and that stable policies and a better institutional environment are crucial in sustaining the macroeconomic stability of China.;Unlike the conventional wisdom that growth and volatility correlate negatively across countries, the third essay finds a significant and positive growth-volatility link across Chinese provinces in the reform period. This link remains significant and positive in several robustness tests. Further analyses from disaggregate perspectives find that the output volatility is correlated with rural consumption growth and urban consumption growth negatively and positively, respectively. At the sectoral level, more volatile sectors command higher investment rate and higher value-added growth. This essay also finds that the expected volatility has positive effect on growth, while both fiscal and investment policy volatilities are significantly harmful to economic growth. However, the significances of policy volatilities vanish once expected volatility is included in the analysis. It partly confirms the analytical argument that the growth-volatility link in China is mainly driven by the positive volatility component. Moreover, a stable policy environment is vital to the economic growth of China despite a positive aggregate growth-volatility link.