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Trend Shocks and Economic Development

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  • Claude Francis Naoussi
  • Fabien Tripier

Abstract

This article explores the role of trend shocks in explaining the specificities of business cycles in developing countries using the methodology introduced by Aguiar and Gopinath (2007) [“Emerging Market Business Cycles: The Cycle Is the Trend” Journal of Political Economy 115(1)]. We specify a small open economy model with transitory and trend shocks on productivity to replicate the differences in the business cycle behavior observed between developed, emerging, and Sub-Saharan Africa countries. Our results suggest a strong relationship between the weight of trend shocks in the source of fluctuations and the level of economic development. The weight of trend shocks is (i) higher in Sub-Saharan Africa countries than in emerging and developed countries, (ii) negatively correlated with the level of income, the quality of institutions, and the size of the credit market, and (iii) uncorrelated with the volatility of aid received by countries, the inflation rate, and the trend in trade-openness.

Suggested Citation

  • Claude Francis Naoussi & Fabien Tripier, 2013. "Trend Shocks and Economic Development," Working Papers 2013-03, CEPII research center.
  • Handle: RePEc:cii:cepidt:2013-03
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    2. Takefumi Yamazaki, 2018. "Financial friction sources in emerging economies: Structural estimation of sovereign default models," Discussion papers ron303, Policy Research Institute, Ministry of Finance Japan.
    3. Daniel Baksa & Istvan Konya, 2017. "Interest premium and economic growth: the case of CEE," CERS-IE WORKING PAPERS 1712, Institute of Economics, Centre for Economic and Regional Studies.
    4. Broadbent, Ben & Di Pace, Federico & Drechsel, Thomas & Harrison, Richard & Tenreyro, Silvana, 2019. "The Brexit vote, productivity growth and macroeconomic adjustments in the United Kingdom," Discussion Papers 51, Monetary Policy Committee Unit, Bank of England.
    5. Chen, Changsheng & Girardin, Eric & Mehrotra, Aaron, 2017. "Global slack and open economy Phillips curves – A province-level view from China," China Economic Review, Elsevier, vol. 42(C), pages 74-87.
    6. Wataru Miyamoto & Thuy Lan Nguyen, 2016. "Business Cycles in Small, Open Economies: Evidence from Panel Data Between 1900 and 2013," Staff Working Papers 16-48, Bank of Canada.
    7. Horvath, Jaroslav & Yang, Guanyi, 2022. "Unemployment dynamics and informality in small open economies," European Economic Review, Elsevier, vol. 141(C).
    8. Dániel Baksa & István Kónya, 2021. "Convergence stories of post‐socialist Central‐Eastern European countries," Manchester School, University of Manchester, vol. 89(3), pages 239-258, June.
    9. Kónya, István & Baksa, Dániel, 2017. "Növekedés és pénzügyi környezet [Growth and the financial environment]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 349-376.
    10. Stefan Notz & Peter Rosenkranz, 2014. "Business cycles in emerging markets: the role of liability dollarization and valuation effects," ECON - Working Papers 163, Department of Economics - University of Zurich.
    11. Notz, Stefan & Rosenkranz, Peter, 2021. "Business cycles in emerging markets: The role of liability dollarization and valuation effects," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 424-450.
    12. Naqvi, Asjad & Monasterolo, Irene, 2019. "Natural Disasters, Cascading Losses, and Economic Complexity: A Multi-layer Behavioral Network Approach," Ecological Economic Papers 24, WU Vienna University of Economics and Business.
    13. Aleksandra Gawel & Agnieszka Głodowska, 2021. "On the Relationship between Economic Dynamics and Female Entrepreneurship: Reflections for the Visegrad Countries," Administrative Sciences, MDPI, vol. 11(3), pages 1-18, August.
    14. Joel M. David & Espen Henriksen & Ina Simonovska, 2014. "The Risky Capital of Emerging Markets," NBER Working Papers 20769, National Bureau of Economic Research, Inc.
    15. Daniel Baksa & Istvan Konya, 2019. "Convergence, productivity and debt: the case of Hungary," CERS-IE WORKING PAPERS 1916, Institute of Economics, Centre for Economic and Regional Studies.
    16. Sangyup Choi & Myungkyu Shim, 2018. "Labor Market Dynamics in Developing Economies: the Role of Subsistence Consumption," Working papers 2018rwp-127, Yonsei University, Yonsei Economics Research Institute.

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    More about this item

    Keywords

    Business Cycle; Permanent shocks; Growth; Africa; Small open economy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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