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Structural Policies for Shock-Prone Developing Countries

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  • Paul Collier
  • Benedikt Goderis

Abstract

Many developing countries periodically face large adverse shocks to their economies. We study two distinct types of such shocks - large declines in the price of a country’s commodity exports and severe natural disasters - , both of which have occurred frequently in the recent past. Unsurprisingly, adverse shocks reduce the short-term growth of constant-price GDP and we analyze which structural policies help to minimize these losses. Structural policies are incentives and regulations that are maintained for long periods, contrasting with policy responses to shocks, the analysis of which has dominated the literature. We show that some previously neglected structural policies have large effects that are specific to particular types of shock. In particular, regulations which reduce the speed of firm exit substantially increase the short-term growth loss from adverse non-agricultural export price shocks and so are particularly ill-suited to mineral exporting economies. Natural disasters appear to be better accommodated by labour market policies, perhaps because such shocks directly dislocate the population.

Suggested Citation

  • Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," CSAE Working Paper Series 2009-03, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2009-03
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    File URL: http://www.csae.ox.ac.uk/materials/papers/2009-03text.pdf
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    2. Paul Collier & Benedikt Goderis, 2009. "Does Aid Mitigate External Shocks?," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 429-451, August.
    3. Dehn,Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series 2426, The World Bank.
    4. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
    5. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
    6. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 703-726, October.
    7. Davin Chor & Richard B. Freeman, 2005. "The 2004 Global Labor Survey: Workplace Institutions and Practices Around the World," NBER Working Papers 11598, National Bureau of Economic Research, Inc.
    8. Paul Collier & Benedikt Goderis, 2007. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," CSAE Working Paper Series 2007-15, Centre for the Study of African Economies, University of Oxford.
    9. Jan Dehn, 2000. "Commodity price uncertainty in developing countries," CSAE Working Paper Series 2000-12, Centre for the Study of African Economies, University of Oxford.
    10. Norman V. Loayza & Claudio Raddatz, 2007. "The Structural Determinants of External Vulnerability," World Bank Economic Review, World Bank Group, vol. 21(3), pages 359-387, October.
    11. repec:hrv:faseco:34721963 is not listed on IDEAS
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    Cited by:

    1. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 703-726, October.
    2. Mary Hallward-Driemeier & Bob Rijkers, 2013. "Do Crises Catalyze Creative Destruction? Firm-level Evidence from Indonesia," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1788-1810, December.
    3. Era Dabla-Norris & Yasemin Bal Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries; A Vulnerability Index," IMF Working Papers 12/264, International Monetary Fund.
    4. Dabla-Norris, Era & Bal Gündüz, Yasemin, 2014. "Exogenous Shocks and Growth Crises in Low-Income Countries: A Vulnerability Index," World Development, Elsevier, vol. 59(C), pages 360-378.
    5. Chris Papageorgiou & Andrew Berg & Catherine A Pattillo & Nicola Spatafora, 2010. "The End of An Era? the Medium- and Long-Term Effects of the Global Crisison Growth in Low-Income Countries," IMF Working Papers 10/205, International Monetary Fund.
    6. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2012. "Resource Rents, Political Institutions and Economic Growth," Documentos de Trabajo 413, Instituto de Economia. Pontificia Universidad Católica de Chile..
    7. Henderson, J. Vernon & Roberts, Mark & Storeygard, Adam, 2013. "Is urbanization in Sub-Saharan Africa different ?," Policy Research Working Paper Series 6481, The World Bank.
    8. Gheorghe Săvoiu & Vasile Dinu & Laurenţiu Tăchiciu, 2012. "Romania Foreign Trade in Global Recession, Revealed by the Extended Method of Exchange Rate Indicators," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 14(31), pages 173-194, February.
    9. Freund, Caroline & Rijkers, Bob, 2014. "Episodes of unemployment reduction in rich, middle-income and transition economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 907-923.
    10. Ibrahim A. Elbadawi & Linda Kaltani, 2014. "Real Exchange Rates and Export Performance in Oil-Dependent Arab Economies," Working Papers 878, Economic Research Forum, revised Nov 2014.
    11. Loayza, Norman, 2011. "Volatilidad y crisis: Tres lecciones para países en desarrollo," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 9-20.
    12. Chris Papageorgiou & Hans Weisfeld & Catherine A Pattillo & Martin Schindler & Nicola Spatafora & Andrew Berg, 2011. "Global Shocks and their Impacton Low-Income Countries; Lessons From theglobal Financial Crisis," IMF Working Papers 11/27, International Monetary Fund.
    13. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 703-726, October.

    More about this item

    Keywords

    commodity price shocks; natural disasters; growth; policies;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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