EconPapers    
Economics at your fingertips  
 

Volatility and Development

Miklós Koren and Silvana Tenreyro

No 5307, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Why is GDP growth so much more volatile in poor countries than in rich ones? We identify four possible reasons: (i) poor countries specialize in more volatile sectors; (ii) poor countries specialize in fewer sectors; (iii) poor countries experience more frequent and more severe aggregate shocks (e.g. from macroeconomic policy); and (iv) poor countries' macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in. We show how to decompose volatility into these four sources, quantify their contribution to aggregate volatility, and study how they relate to the stage of development. We document the following regularities. First, as countries develop, their productive structure moves from more volatile to less volatile sectors. Second, the level of specialization declines with development at early stages, and slowly increases at later stages of development. Third, the volatility of country- specific macroeconomic shocks falls with development. Fourth, the covariance between sector-specific and country-specific shocks does not vary systematically with the level of development. We argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work.

Keywords: Volatility; Specialization; Diversification; Development; Economic fluctuations (search for similar items in EconPapers)
JEL-codes: E32 O11 O14 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-afr and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Downloads: (external link)
https://cepr.org/publications/DP5307 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Volatility and Development (2007) Downloads
Working Paper: Volatility and Development (2005) Downloads
Working Paper: Volatility and development (2005) Downloads
Working Paper: Volatility and development (2005) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5307

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5307

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-23
Handle: RePEc:cpr:ceprdp:5307