Trend shocks and economic development

Claude Francis Naoussi and Fabien Tripier

Journal of Development Economics, 2013, vol. 103, issue C, 29-42

Abstract: This article explores the role of trend shocks in explaining the specificities of business cycles in developing countries using the methodology introduced by Aguiar and Gopinath (2007). We specify a small open economy model with transitory and trend shocks on productivity to replicate the differences in the business cycle behavior observed between developed, emerging, and Sub-Saharan Africa countries. Our results suggest a strong relationship between the weight of trend shocks in the source of fluctuations and the level of economic development. The weight of trend shocks is (i) higher in Sub-Saharan Africa countries than in emerging and developed countries, (ii) negatively correlated with the level of income, the quality of institutions, and the size of the credit market, and (iii) uncorrelated with the volatility of aid received by countries, the inflation rate, and the trend in trade-openness.

Keywords: Business cycle; Permanent shocks; Growth; Africa; Small open economy (search for similar items in EconPapers)
JEL-codes: E32 F41 O55 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (24)

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Related works:
Working Paper: Trend Shocks and Economic Development (2013)
Working Paper: Trend shocks and economic development (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:103:y:2013:i:c:p:29-42

DOI: 10.1016/j.jdeveco.2013.01.004

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