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Explaining policy volatility in developing countries

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Author Info
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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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
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Handle: RePEc:bri:uobdis:06/583

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

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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Full references

Cited by:
(explanations, 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. Vatcharin Sirimaneetham, 2006. "What drives liberal policies in developing countries?," Bristol Economics Discussion Papers 06/587, Department of Economics, University of Bristol, UK. [Downloadable!]
  2. Cemile Sancak & Laura Jaramillo, 2007. "Growth in the Dominican Republic and Haiti: Why has the Grass Been Greener on One Side of Hispaniola," IMF Working Papers 07/63, International Monetary Fund. [Downloadable!]
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