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Structural policies for shock-prone developing countries

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Author Info
Paul Collier
Benedikt Goderis

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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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File URL: http://hdl.handle.net/10.1093/oep/gpp026
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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Collier, Paul & Goderis, Benedikt, 2008. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," MPRA Paper 17315, University Library of Munich, Germany. [Downloadable!]
  2. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  3. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 703-726, October. [Downloadable!] (restricted)
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  4. Norman V. Loayza & Claudio Raddatz, 2007. "The Structural Determinants of External Vulnerability," World Bank Economic Review, Oxford University Press, vol. 21(3), pages 359-387, October. [Downloadable!] (restricted)
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  5. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany. [Downloadable!]
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  6. Paul Collier & Benedikt Goderis, 2009. "Does Aid Mitigate External Shocks?," Review of Development Economics, Blackwell Publishing, vol. 13(s1), pages 429-451, 08. [Downloadable!] (restricted)
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  7. Dehn, Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series 2426, The World Bank. [Downloadable!]
  8. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September. [Downloadable!] (restricted)
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  1. Collier, Paul & Goderis, Benedikt, 2009. "Structural policies for shock-prone developing countries," MPRA Paper 17311, University Library of Munich, Germany. [Downloadable!]
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