The Cost Of Volatile Investment In An Emerging Economy
The author measures the welfare gains from eliminating fluctuations in investment in an emerging economy such as Argentina. The estimated welfare effects are an order of magnitude higher than those for the US and arise with moderate degrees of diminishing returns to investment. This paper calculates the welfare costs associated with volatile investment flows in an emerging economy. Compared to a developed economy, these costs could be higher in an emerging economy for at least two reasons.