Koren, Miklos and Tenreyro, Silvana 
ORCID: 0000-0002-9816-7452
(2007)
Volatility and development.
Quarterly Journal of Economics, 122 (1).
243 - 287.
ISSN 0033-5533
Abstract
Why is GDP growth so much more volatile in poor countries than in rich ones? We identify three possible reasons: (i) poor countries specialize in fewer and more volatile sectors; (ii) poor countries experience more frequent and more severe aggregate shocks (e.g., from macroeconomic policy); and (iii) poor countries' macroeconomic fluduations are more highly correlated with the shocks affecting the sectors they specialize in. We show how to decompose volatility into the various 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 volatility of country-specific macroeconomic shocks falls with development. Third, the covariance between sector-specific and country-specific shocks does not vary systematically with the level of development. There is also some evidence that the degree of sectoral concentration declines with development at early stages, and increases at later stages. We argue that many theories linking volatility and development are not consistent with these findings, and suggest new directions for future theoretical work.
| Item Type: | Article |
|---|---|
| Official URL: | https://academic.oup.com/qje |
| Additional Information: | © 2007 The President and Fellows of Harvard College and the Massachusetts Institute of Technology |
| Divisions: | Centre for Economic Performance Economics |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | O - Economic Development, Technological Change, and Growth > O1 - Economic Development |
| Date Deposited: | 05 Jul 2007 |
| Last Modified: | 04 Jul 2025 21:24 |
| URI: | http://eprints.lse.ac.uk/id/eprint/1022 |
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