Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Volatility Curse: Revisiting the Paradox of Plenty

Contents:

Author Info

  • Frederick van der Ploeg
  • Steven Poelhekke

Abstract

The volatility of unanticipated output growth in income per capita is detrimental to long-run development, controlling for initial income per capita, population growth, human capital, investment, openness and natural resource dependence. This effect is significant and robust over a wide range of specifications. We unravel the effects of volatility by opening the black box and conditioning the variance of growth shocks on several country characteristics. Natural resource dependence, physical and institutional barriers to trade and associated policy shocks increase volatility sharply and harm growth through this indirect channel. The robust indirect effect of natural resources through volatility trumps any direct effects on economic development, even if natural resource dependence is measured net of extraction costs. Financial development appears to mitigate the harmful causes of volatility. Our panel data estimation confirms our cross-country results, but we also offer evidence that well developed financial systems amplify the effect of short-term terms-of-trade volatility on macroeconomic volatility.�Â

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.dnb.nl/binaries/Working%20paper%20206_tcm46-214562.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 206.

as in new window
Length:
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:dnb:dnbwpp:206

Contact details of provider:
Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/
More information through EDIRC

Related research

Keywords: volatility; growth; natural resource curse; financial development.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Malik, Adeel & Temple, Jonathan, 2006. "The Geography of Output Volatility," CEPR Discussion Papers 5516, C.E.P.R. Discussion Papers.
  2. Miklos Koren & Silvana Tenreyro, 2005. "Volatility and development," LSE Research Online Documents on Economics 5312, London School of Economics and Political Science, LSE Library.
  3. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
  4. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  5. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
  6. Jose G. Montalvo & Marta Reynal-Querol, 2007. "Fighting against Malaria: Prevent Wars while Waiting for the "Miraculous" Vaccine," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 165-177, February.
  7. Ricardo Hausmann & Ugo Panizza & Roberto Rigobon, 2004. "The Long-Run Volatility Puzzle of the Real Exchange Rate," NBER Working Papers 10751, National Bureau of Economic Research, Inc.
  8. Mirman, Leonard J, 1971. "Uncertainty and Optimal Consumption Decisions," Econometrica, Econometric Society, vol. 39(1), pages 179-85, January.
  9. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
  10. Kose, M. Ayhan & Prasad, Eswar & Terrones, Marco E., 2006. "How Do Trade and Financial Integration Affect the Relationship between Growth and Volatility?," IZA Discussion Papers 2252, Institute for the Study of Labor (IZA).
  11. Acemoglu, Daron & Johnson, Simon & Robinson, James A & Thaicharoen, Yunyong, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," CEPR Discussion Papers 3575, C.E.P.R. Discussion Papers.
  12. Ning Ding & Barry C. Field, 2005. "Natural Resource Abundance and Economic Growths," Land Economics, University of Wisconsin Press, vol. 81(4).
  13. Philippe Aghion & Philippe Bacchetta & Romain Ranciere & Kenneth Rogoff, 2006. "Exchange Rate Volatility and Productivity Growth: The Role of Financial Development," NBER Working Papers 12117, National Bureau of Economic Research, Inc.
  14. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
  15. William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers 4474, National Bureau of Economic Research, Inc.
  16. Ratna Sahay & Luis Felipe Céspedes & Paul Cashin, 2002. "Keynes, Cocoa, and Copper," IMF Working Papers 02/223, International Monetary Fund.
  17. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
  18. Rose, Andrew K. & Spiegel, Mark M., 2009. "International financial remoteness and macroeconomic volatility," Journal of Development Economics, Elsevier, vol. 89(2), pages 250-257, July.
  19. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  20. Frederick van der Ploeg & Steven Poelhekke, 2009. "Volatility and the natural resource curse," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 727-760, October.
  21. Romain Wacziarg & Karen Horn Welch, 2008. "Trade Liberalization and Growth: New Evidence," World Bank Economic Review, World Bank Group, vol. 22(2), pages 187-231, June.
  22. Blattman, Christopher & Hwang, Jason & Williamson, Jeffrey G., 2007. "Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870-1939," Journal of Development Economics, Elsevier, vol. 82(1), pages 156-179, January.
  23. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  24. Gylfason, Thorvaldur, 2000. "Natural Resources, Education, and Economic Development," CEPR Discussion Papers 2594, C.E.P.R. Discussion Papers.
  25. Brunnschweiler, Christa N. & Bulte, Erwin H., 2008. "The resource curse revisited and revised: A tale of paradoxes and red herrings," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 248-264, May.
  26. Philippe Aghion & George-Marios Angeletos & Abhijit Banerjee & Kalina Manova, 2005. "Volatility and Growth: Credit Constraints and Productivity-Enhancing Investment," NBER Working Papers 11349, National Bureau of Economic Research, Inc.
  27. Montalvo, Jose G. & Reynal-Querol, Marta, 2005. "Ethnic diversity and economic development," Journal of Development Economics, Elsevier, vol. 76(2), pages 293-323, April.
  28. Michael Alexeev & Robert Conrad, 2009. "The Elusive Curse of Oil," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 586-598, August.
  29. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 1, Center for International Development at Harvard University.
  30. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  31. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. World Bank, 2009. "Sudan - The Road Toward Sustainable and Broad-Based Growth," World Bank Other Operational Studies 3183, The World Bank.
  2. World Bank, 2009. "Sudan - Toward Sustainable and Broad-Based Growth," World Bank Other Operational Studies 3169, The World Bank.
  3. Eisgruber, Lasse, 2013. "The resource curse: Analysis of the applicability to the large-scale export of electricity from renewable resources," Energy Policy, Elsevier, vol. 57(C), pages 429-440.
  4. Marcelo Martinez & Montfort Mlachila, 2013. "The Quality of the Recent High-Growth Episode in Sub-Saharan Africa," IMF Working Papers 13/53, International Monetary Fund.
  5. Kurronen, Sanna, 2012. "Financial sector in resource-dependent economies," BOFIT Discussion Papers 6/2012, Bank of Finland, Institute for Economies in Transition.
  6. Vittorio Daniele, 2011. "Natural Resources and the 'Quality' of Economic Development," Journal of Development Studies, Taylor & Francis Journals, vol. 47(4), pages 545-573.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dnb:dnbwpp:206. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.