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Explaining policy volatility in developing countries

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  • Vatcharin Sirimaneetham

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Abstract

This paper studies the causes of policy volatility in developing countries during 1970-1999. To construct composite policy volatility indicators, the paper applies a robust principal components analysis to Washington Consensus policy variables. The results suggest three dimensions of policy volatility: fiscal, macroeconomic and development policies. The paper shows that more stable macroeconomic policy is associated with higher income growth, before turning to the determinants of volatility. Using a Bayesian approach which addresses the model uncertainty problem, the paper finds that macroeconomic policy is more volatile in countries that adopt a presidential system, have weaker political constraints, where government stability is lower, and that are former British colonies. Adopting a parliamentary regime helps to stabilize policy.

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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series Bristol Economics Discussion Papers with number 06/583.

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Length: 60 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:bri:uobdis:06/583

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Keywords: policy volatility; economic growth; Bayesian model averaging; principal components.;

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Cited by:
  1. Vatcharin Sirimaneetham, 2006. "What drives liberal policies in developing countries?," Bristol Economics Discussion Papers 06/587, Department of Economics, University of Bristol, UK.
  2. Laura Jaramillo & Cemile Sancak, 2007. "Growth in the Dominican Republic and Haiti," IMF Working Papers 07/63, International Monetary Fund.

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