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Explaining policy volatility in developing countries

Vatcharin Sirimaneetham

Bristol Economics Discussion Papers from School of Economics, University of Bristol, UK

Abstract: This paper studies the causes of policy volatility in developing countries during 1970-1999. To construct composite policy volatility indicators, the paper applies a robust principal components analysis to Washington Consensus policy variables. The results suggest three dimensions of policy volatility: fiscal, macroeconomic and development policies. The paper shows that more stable macroeconomic policy is associated with higher income growth, before turning to the determinants of volatility. Using a Bayesian approach which addresses the model uncertainty problem, the paper finds that macroeconomic policy is more volatile in countries that adopt a presidential system, have weaker political constraints, where government stability is lower, and that are former British colonies. Adopting a parliamentary regime helps to stabilize policy.

Keywords: policy volatility; economic growth; Bayesian model averaging; principal components. (search for similar items in EconPapers)
JEL-codes: C11 O11 O40 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2006-01
New Economics Papers: this item is included in nep-dev and nep-lam
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bri:uobdis:06/583

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