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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. Collier, Paul & Goderis, Benedikt, 2008. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," MPRA Paper 17315, University Library of Munich, Germany.
  2. Jan Dehn, 2000. "Commodity Price Uncertainty in Developing Countries," Economics Series Working Papers WPS/2000-12, University of Oxford, Department of Economics.
  3. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," CSAE Working Paper Series 2009-03, Centre for the Study of African Economies, University of Oxford.
  4. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  5. 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.
  6. Paul Collier & Benedikt Goderis, 2007. "Does Aid Mitigate External Shocks?," Economics Series Working Papers WPS/2007-18, University of Oxford, Department of Economics.
  7. 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.
  8. Loayza, Norman V. & Raddatz, Claudio, 2006. "The structural determinants of external vulnerability," Policy Research Working Paper Series 4089, The World Bank.
  9. Dehn, Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series 2426, The World Bank.
  10. 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.
  11. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  12. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
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Cited by:
  1. 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, vol. 14(31), pages 173-194, February.
  2. Hallward-Driemeier, Mary & Rijkers, Bob, 2011. "Do crises catalyze creative destruction ? firm-level evidence from Indonesia," Policy Research Working Paper Series 5869, The World Bank.
  3. Henderson, J. Vernon & Roberts, Mark & Storeygard, Adam, 2013. "Is urbanization in Sub-Saharan Africa different ?," Policy Research Working Paper Series 6481, The World Bank.
  4. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," Economics Series Working Papers CSAE WPS/2009-03, University of Oxford, Department of Economics.
  5. Era Dabla-Norris & Yasemin Bal-Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries," IMF Working Papers 12/264, International Monetary Fund.
  6. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2012. "Resource Rents, Political Institutions and Economic Growth," Documentos de Trabajo 413, Instituto de Economia. Pontificia Universidad Católica de Chile..
  7. 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 11/27, International Monetary Fund.
  8. Freund, Caroline & Rijkers, Bob, 2014. "Episodes of unemployment reduction in rich, middle-income, and transition economies," Policy Research Working Paper Series 6891, The World Bank.
  9. 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 25, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  10. Loayza, Norman, 2011. "Volatilidad y crisis: Tres lecciones para países en desarrollo," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 9-20.

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