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Are external shocks responsible for the instability of output in low income countries?

Claudio Raddatz

No 3680, Policy Research Working Paper Series from The World Bank

Abstract: External shocks, such as commodity price fluctuations, natural disasters, and the role of the international economy, are often blamed for the poor economic performance of low-income countries. The author quantifies the impact of these different external shocks using a panel vector autoregression (VAR) approach and compares their relative contributions to output volatility in low-income countries vis-à-vis internal factors. He finds that external shocks can only explain a small fraction of the output variance of a typical low-income country. Internal factors are the main source of fluctuations. From a quantitative perspective, the output effect of external shocks is typically small in absolute terms, but significant relative to the historic performance of these countries.

Keywords: Economic Theory&Research; Inequality; Macroeconomic Management; Achieving Shared Growth; Fiscal&Monetary Policy (search for similar items in EconPapers)
Date: 2005-08-01
New Economics Papers: this item is included in nep-mac
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Journal Article: Are external shocks responsible for the instability of output in low-income countries? (2007) Downloads
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