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Structural Policies for Shock-Prone Developing Countries

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  • Paul Collier
  • Benedikt Goderis

Abstract

Many developing countries periodically 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 - , both of which have occurred frequently in the recent past. Unsurprisingly, adverse shocks reduce the short-term growth of constant-price GDP and we analyze 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.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2009-03.

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Date of creation: 2009
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Handle: RePEc:csa:wpaper:2009-03

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Keywords: commodity price shocks; natural disasters; growth; policies;

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References

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  1. Paul Collier & Benedikt Goderis, 2007. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2007-15, Centre for the Study of African Economies, University of Oxford.
  2. Jan Dehn, 2000. "Commodity price uncertainty in developing countries," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2000-12, Centre for the Study of African Economies, University of Oxford.
  3. Paul Collier & Benedikt Goderis, 2007. "Does Aid Mitigate External Shocks?," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2007-18, University of Oxford, Department of Economics.
  4. 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.
  5. 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.
  6. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  7. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, Oxford University Press, vol. 11(2), pages 355-389.
  8. Loayza, Norman V. & Raddatz, Claudio, 2006. "The structural determinants of external vulnerability," Policy Research Working Paper Series, The World Bank 4089, The World Bank.
  9. 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.
  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. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 61(4), pages 703-726, October.
  12. Dehn, Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series, The World Bank 2426, The World Bank.
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Citations

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Cited by:
  1. 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.
  2. Hallward-Driemeier, Mary & Rijkers, Bob, 2011. "Do crises catalyze creative destruction ? firm-level evidence from Indonesia," Policy Research Working Paper Series, The World Bank 5869, The World Bank.
  3. Chris Papageorgiou & Andrew Berg & Catherine A. Pattillo & Nicola Spatafora, 2010. "The End of An Era? the Medium- and Long-Term Effects of the Global Crisison Growth in Low-Income Countries," IMF Working Papers, International Monetary Fund 10/205, International Monetary Fund.
  4. 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.
  5. 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..
  6. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2009-03, Centre for the Study of African Economies, University of Oxford.
  7. 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.
  8. 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.
  9. 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.
  10. 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.

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