Global volatility accounting and structural transformation[Was Prometheus unbound by chance? Risk, diversification, and growth]

This paper examines whether the modern phase of globalization that started in the mid-1980s altered the canonical result which emphasizes that macroeconomic volatility declines with development. The application of a framework that gives due consideration to comovements and structural transformation to a near-universe sample of economies at different stages of economic development suggests the following set of results. First, with an explicit account for the roles of structural transformation and comovements, macroeconomic volatility declines during the modern phase of globalization for the Centre while it increases for the Periphery. Second, macroeconomic volatility of the Periphery declines with development only where structural transformation is ruled out—an unrealistic situation. Third, comovements are found to be quantitatively important, albeit without altering the fact that structural transformation constitutes the primary vehicle of transmissions of volatility from the Centre to the Periphery, where China emerges as the epicentre.