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Structural Policies for Shock-Prone Developing Countries

  • Paul Collier
  • Benedikt Goderis

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.

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File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2009-03text.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number CSAE WPS/2009-03.

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Date of creation: 01 Mar 2009
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Handle: RePEc:oxf:wpaper:csae-wps/2009-03
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  1. Loayza, Norman V. & Raddatz, Claudio, 2006. "The structural determinants of external vulnerability," Policy Research Working Paper Series 4089, The World Bank.
  2. Paul Collier & Benedikt Goderis, 2007. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," Economics Series Working Papers WPS/2007-15, University of Oxford, Department of Economics.
  3. 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.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  5. 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.
  6. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," Economics Series Working Papers CSAE WPS/2009-03, University of Oxford, Department of Economics.
  7. 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.
  8. Jan Dehn, 2000. "Commodity Price Uncertainty in Developing Countries," Economics Series Working Papers WPS/2000-12, University of Oxford, Department of Economics.
  9. Paul Collier & Benedikt Goderis, 2007. "Does Aid Mitigate External Shocks?," Economics Series Working Papers WPS/2007-18, University of Oxford, Department of Economics.
  10. Witold J. Henisz, 2002. "The institutional environment for infrastructure investment," Industrial and Corporate Change, Oxford University Press, vol. 11(2), pages 355-389.
  11. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  12. Dehn, Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series 2426, The World Bank.
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