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Output Volatility and Large Output Drops in Emerging Market and Developing Countries

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  • Ms. Dalia S Hakura

Abstract

This paper establishes that output volatility and the size of output drops have declined across all countries over the past three decades, but remain considerably higher in developing countries than in industrial countries. The paper employs a Bayesian latent dynamic factor model to decompose output growth into global, regional, and country-specific components. The favorable trends in output volatility and large output drops in developing countries are found to result from lower country-specific volatility and more benign country-specific events. Evidence from cross-section regressions over the 1970-2003 period suggest that discretionary fiscal spending volatility, and terms of trade volatility together with exchange rate flexibility are key determinants of volatility and large output drops.

Suggested Citation

  • Ms. Dalia S Hakura, 2007. "Output Volatility and Large Output Drops in Emerging Market and Developing Countries," IMF Working Papers 2007/114, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2007/114
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    1. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
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    Cited by:

    1. Hideaki Hirata & M. Ayhan Kose & Chris Otrok, "undated". "Regionalization vs. Globalization," Working Paper 164456, Harvard University OpenScholar.
    2. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers 14533, National Bureau of Economic Research, Inc.
    3. M. Tariq Majeed & Ayesha Noreen, 2018. "Financial Development and Output Volatility: A Cross-Sectional Panel Data Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 97-141, Jan-June.
    4. Zouhair Aït Benhamou, 2016. "Fluctuations in emerging economies: regional and global factors," Working Papers hal-04141608, HAL.
    5. Hasan Engin Duran, 2019. "Structural change and output volatility reduction in OECD countries: evidence of the Second Great Moderation," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 8(1), pages 1-14, December.
    6. Spiliopoulos, Leonidas, 2010. "The determinants of macroeconomic volatility: A Bayesian model averaging approach," MPRA Paper 26832, University Library of Munich, Germany.
    7. Hasan Engin Duran, 2015. "Regional Employment Volatility In Turkey: Causes And Consequences," Working Papers 2015/06, Turkish Economic Association.
    8. Zouhair Aït Benhamou, 2016. "Fluctuations in Emerging Economies: Regional and Global Factors," Research papers & Policy papers on Economic Trends and Policies 1601, Policy Center for the New South.
    9. Mahalia Jackman, 2014. "Output Volatility and Tourism Specialization in Small Island Developing States," Tourism Economics, , vol. 20(3), pages 527-544, June.
    10. -, 2007. "Economic Survey of Latin America and the Caribbean 2006-2007," Estudio Económico de América Latina y el Caribe, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1065 edited by Eclac, September.
    11. Barbaros Güneri & A. Yasemin Yalta, 2021. "Does economic complexity reduce output volatility in developing countries?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(3), pages 411-431, July.
    12. Ms. Dalia S Hakura & Mr. Ralph Chami & Mr. Peter J Montiel, 2009. "Remittances: An Automatic Output Stabilizer?," IMF Working Papers 2009/091, International Monetary Fund.
    13. Zouhair Ait Benhamou, 2016. "Fluctuations in emerging economies: regional and global factors," EconomiX Working Papers 2016-3, University of Paris Nanterre, EconomiX.
    14. Gutiérrez, Mario A., 2007. "Economic growth in Latin America and the Caribbean: growth transitions rather than steady states," Macroeconomía del Desarrollo 5425, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    15. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.

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