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On the Welfare Cost of Economic Fluctuations in Developing Countries

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Author Info
Stephane Pallage
Michel A. Robe

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Abstract

Macroeconomic fluctuations are much stronger in developing countries than in the United States. Yet, while a large literature debates the welfare cost of economic fluctuations in the United States, it remains an open question how large that cost is in developing countries. Using several models, we provide such a measure. We find that the welfare cost of consumption volatility per se is far from trivial and averages a substantial multiple of the corresponding U.S. estimate. Moreover, in many poor countries, the welfare gain from eliminating volatility may in fact exceed the welfare gain from an additional percentage point of growth forever. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 44 (2003)
Issue (Month): 2 (05)
Pages: 677-698
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Handle: RePEc:ier:iecrev:v:44:y:2003:i:2:p:677-698

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  4. Jann Lay & Toman Omar Mahmoud, 2004. "Bananas, Oil, and Development: Examining the Resource Curse and Its Transmission Channels by Resource Type," Kiel Working Papers 1218, Kiel Institute for the World Economy. [Downloadable!]
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  7. P R Agénor & D Yilmaz, 2006. "The Tyranny of Rules: Fiscal Discipline, Productive Spending, and Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 73, Economics, The Univeristy of Manchester. [Downloadable!]
  8. Christian Volpe Martincus & Andrea Molinari, 2007. "Regional Business Cycles and National Economic Borders: What Are the Effects of Trade in Developing Countries?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 127(1), pages 140-178, April. [Downloadable!] (restricted)
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  10. Anne Epaulard & Aude Pommeret, 2003. "Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 672-684, July. [Downloadable!] (restricted)
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  11. Pierre-Olivier Gourinchas & Olivier Jeanne, 2004. "The Elusive Gains from International Financial Integration," IMF Working Papers 04/74, International Monetary Fund. [Downloadable!]
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  12. Fábio Augusto Reis Gomes & Leandro Gonçalves do Nascimento, 2004. "A Welfare Analysis Of Economic Fluctuations In South America," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 045, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  13. Matthias Basedau, 2005. "Context Matters – Rethinking the Resource Curse in Sub-Saharan Africa," GIGA Working Paper Series 01, GIGA German Institute of Global and Area Studies. [Downloadable!]
  14. Maurice Obstfeld, 2006. "Globalization, Macroeconomic Performance, and the Exchange Rates of Emerging Economies," Center for International and Development Economics Research, Working Paper Series 1053, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  15. Stéphane Pallage & Michel A. Robe & Catherine Bérubé, 2006. "The Potential of Foreign Aid as Insurance," IMF Staff Papers, Palgrave Macmillan Journals, vol. 53(3), pages 5. [Downloadable!] (restricted)
  16. Jean Imbs & Paolo Mauro, 2007. "Pooling Risk Among Countries," IMF Working Papers 07/132, International Monetary Fund. [Downloadable!]
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  17. M. Ayhan Kose & Eswar Prasad & Marco Terrones, 2003. "Financial Integration and Macroeconomic Volatility," IMF Working Papers 03/50, International Monetary Fund. [Downloadable!]
  18. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Growth Volatility and Financial Liberalization," NBER Working Papers 10560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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