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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," CEPR Discussion Papers 9657, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9657
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    3. Brüeckner,Markus & Carneiro,Francisco Galrao, 2015. "The effects of volatility, fiscal policy cyclicality and financial development on growth : evidence for the Eastern Caribbean," Policy Research Working Paper Series 7507, The World Bank.

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    More about this item

    Keywords

    government size; Volatility;

    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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