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Exogenous volatility and the size of government in developing countries

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  • Brückner, Markus
  • Gradstein, Mark

Abstract

This paper presents instrumental variables estimates of the effects of GDP per capita volatility on the size of government. We show that for a panel of 157 countries spanning more than half a century, rainfall volatility has a significant positive effect on GDP per capita volatility in countries with above median temperatures. In these countries rainfall volatility has also a significant positive reduced-form effect on the GDP share of government. There is no significant reduced-form effect in the sample of countries with below median temperatures where rainfall volatility has no significant effect on GDP per capita volatility. Using rainfall volatility as an instrumental variable in the sample of countries with above median temperatures yields that greater GDP per capita volatility leads to a significantly higher GDP share of government.

Suggested Citation

  • Brückner, Markus & Gradstein, Mark, 2013. "Exogenous volatility and the size of government in developing countries," Journal of Development Economics, Elsevier, vol. 105(C), pages 254-266.
  • Handle: RePEc:eee:deveco:v:105:y:2013:i:c:p:254-266
    DOI: 10.1016/j.jdeveco.2013.08.005
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    Cited by:

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    3. Markus Brueckner & Francisco Carneiro, 2017. "Terms of trade volatility, government spending cyclicality, and economic growth," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 975-989, November.

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    More about this item

    Keywords

    Volatility; Government size; Rainfall;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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