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Structural policies for shock-prone developing countries

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  • Paul Collier
  • Benedikt Goderis

Abstract

Developing countries frequently face large adverse shocks to their economies. We study two distinct types of such shocks: large declines in the price of a country's commodity exports and severe natural disasters. Unsurprisingly, adverse shocks reduce the short-term growth of constant-price GDP and we analyse which structural policies help to minimize these losses. Structural policies are incentives and regulations that are maintained for long periods, contrasting with policy responses to shocks, the analysis of which has dominated the literature. We show that some previously neglected structural policies have large effects that are specific to particular types of shock. In particular, regulations which reduce the speed of firm exit substantially increase the short-term growth loss from adverse non-agricultural export price shocks and so are particularly ill-suited to mineral exporting economies. Natural disasters appear to be better accommodated by labour market policies, perhaps because such shocks directly dislocate the population. Copyright 2009 Oxford University Press 2009 All rights reserved, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 61 (2009)
Issue (Month): 4 (October)
Pages: 703-726

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Handle: RePEc:oup:oxecpp:v:61:y:2009:i:4:p:703-726

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(1), pages 1-48, February.
  2. Collier, Paul & Goderis, Benedikt, 2008. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," MPRA Paper 17315, University Library of Munich, Germany.
  3. Dehn, Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series, The World Bank 2426, The World Bank.
  4. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," Economics Series Working Papers, University of Oxford, Department of Economics CSAE WPS/2009-03, University of Oxford, Department of Economics.
  5. Jan Dehn, 2000. "Commodity Price Uncertainty in Developing Countries," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2000-12, University of Oxford, Department of Economics.
  6. Paul Collier & Benedikt Goderis, 2010. "Does Aid Mitigate External Shocks?," Working Papers id:3216, eSocialSciences.
  7. Davin Chor & Richard B. Freeman, 2005. "The 2004 Global Labor Survey : Workplace Institutions and Practices Around the World," Labor Economics Working Papers 22066, East Asian Bureau of Economic Research.
  8. Raddatz, Claudio, 2005. "Are external shocks responsible for the instability of output in low income countries?," Policy Research Working Paper Series, The World Bank 3680, The World Bank.
  9. Norman V. Loayza & Claudio Raddatz, 2007. "The Structural Determinants of External Vulnerability," World Bank Economic Review, World Bank Group, World Bank Group, vol. 21(3), pages 359-387, October.
  10. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, Elsevier, vol. 63(1), pages 31-58, May.
  11. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  12. Jan Dehn, 2000. "Commodity price uncertainty in developing countries," CSAE Working Paper Series 2000-12, Centre for the Study of African Economies, University of Oxford.
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Cited by:
  1. Era Dabla-Norris & Yasemin Bal-Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries," IMF Working Papers, International Monetary Fund 12/264, International Monetary Fund.
  2. Berg, Andrew & Papageorgiou, Chris & Pattillo, Catherine & Spatafora, Nicola, 2011. "The end of an era? The medium- and long-term effects of the global crisis on growth in low-income countries," IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO) 25, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  3. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," Economics Series Working Papers, University of Oxford, Department of Economics CSAE WPS/2009-03, University of Oxford, Department of Economics.
  4. Mary Hallward-Driemeier & Bob Rijkers, 2013. "Do Crises Catalyze Creative Destruction? Firm-level Evidence from Indonesia," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 95(5), pages 1788-1810, December.
  5. Chris Papageorgiou & Hans Weisfeld & Catherine A. Pattillo & Martin Schindler & Nicola Spatafora & Andrew Berg, 2011. "Global Shocks and their Impacton Low-Income Countries," IMF Working Papers, International Monetary Fund 11/27, International Monetary Fund.
  6. Freund, Caroline & Rijkers, Bob, 2014. "Episodes of unemployment reduction in rich, middle-income, and transition economies," Policy Research Working Paper Series, The World Bank 6891, The World Bank.
  7. Gheorghe Săvoiu & Vasile Dinu & Laurenţiu Tăchiciu, 2012. "Romania Foreign Trade in Global Recession, Revealed by the Extended Method of Exchange Rate Indicators," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, Academy of Economic Studies - Bucharest, Romania, vol. 14(31), pages 173-194, February.
  8. Loayza, Norman, 2011. "Volatilidad y crisis: Tres lecciones para países en desarrollo," Revista Estudios Económicos, Banco Central de Reserva del Perú, Banco Central de Reserva del Perú, issue 22, pages 9-20.
  9. Henderson, J. Vernon & Roberts, Mark & Storeygard, Adam, 2013. "Is urbanization in Sub-Saharan Africa different ?," Policy Research Working Paper Series, The World Bank 6481, The World Bank.
  10. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2012. "Resource Rents, Political Institutions and Economic Growth," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 413, Instituto de Economia. Pontificia Universidad Católica de Chile..

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