Long-term growth and short-term economic instability

When learning by doing is at the origin of growth the long-run growth rate should be negatively related to the amplitude of the business cycle if huma n capital accumulation is increasing and concave in the cyclical component of production. Empirical evidence strongly supports this finding for indust rialized countries and European regions. Using the standard control variabl es, we find that countries and regions that have a higher standard deviatio n of growth and of unemployment have lower growth rates. The result does no t come from an effect of instability on investment. The negative relation, however, does not hold for non-industrialized countries, for which learning by doing may not to be the main engine of growth. (C) 2000 Elsevier Scienc e B.V. All rights reserved. JEL classification: O40; E32.