EconPapers    
Economics at your fingertips  
 

Financial Deepening, Terms of Trade Shocks, and Growth Volatility in Low-Income Countries

Kangni Kpodar (), Maëlan Le Goff () and Raju Singh ()

No 2019/068, IMF Working Papers from International Monetary Fund

Abstract: This paper contributes to the literature by looking at the possible relevance of the structure of the financial system—whether financial intermediation is performed through banks or markets—for macroeconomic volatility, against the backdrop of increased policy attention on strengthening growth resilience. With low-income countries (LICs) being the most vulnerable to large and frequent terms of trade shocks, the paper focuses on a sample of 38 LICs over the period 1978-2012 and finds that banking sector development acts as a shock-absorber in poor countries, dampening the transmission of terms of trade shocks to growth volatility. Expanding the sample to 121 developing countries confirms this result, although this role of shock-absorber fades away as economies grow richer. Stock market development, by contrast, appears neither to be a shock-absorber nor a shock-amplifier for most economies. These findings are consistent across a range of econometric estimators, including fixed effect, system GMM and local projection estimates.

Keywords: Terms of trade; Stock markets; Commercial banks; Financial sector development; Credit; WP,terms of trade shock,terms of trade volatility (search for similar items in EconPapers)
Pages: 35
Date: 2019-03-25
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=46681 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Working Paper: Financial Deepening, Terms of Trade Shocks, and Growth Volatility in Low-Income Countries (2018) Downloads
Working Paper: Financial Deepening, Terms of Trade Shocks, and Growth Volatility in Low-Income Countries (2018) Downloads
Working Paper: Financial Deepening, Terms of Trade Shocks, and Growth Volatility in Low-Income Countries (2018) 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:imf:imfwpa:2019/068

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().

 
Page updated 2021-04-19
Handle: RePEc:imf:imfwpa:2019/068