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Magnitude X on the Richter Scale: Welfare Cost of Business Cycles in Developing Countries

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Listed author(s):
  • Stephane Pallage and Michel A. Robe

Abstract

Economic fluctuations are much stronger in developing countries than in the United States. Yet, while a large literature debates what constitutes a reasonable estimate of the welfare cost of business cycles in the US, it remains an open question how large that cost is in developing countries. Using several model economies, we provide such a measure for a large number of low--income countries. Our first main result is that the welfare cost of output fluctuations per se is far from trivial in those countries, and typically averages 15 to 30 times the corresponding estimate for the US. Our second major result is that, in many poor countries, that cost may in fact exceed the welfare cost of significantly lower growth.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 97.

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Date of creation: 01 Apr 2001
Handle: RePEc:sce:scecf1:97
Contact details of provider: Web page: http://www.econometricsociety.org/conference/SCE2001/SCE2001.html
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Keywords: Business cycles; consumption volatility; growth; welfare costs;

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Find related papers by JEL classification:
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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  12. Reinhart, Carmen & Ostry, Jonathan, 1991. "Private Saving and Terms of Trade Shocks," MPRA Paper 13716, University Library of Munich, Germany.
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  16. Pemberton, James, 1996. "Growth trends, cyclical fluctuations, and welfare with non-expected utility preferences," Economics Letters, Elsevier, vol. 50(3), pages 387-392, March.
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Cited by:

  1. Winston Moore, 2014. "Managing The Process Of Removing Capital Controls: What Does The Literature Suggest?," Journal of Economic Surveys, Wiley Blackwell, vol. 28(2), pages 209-237, 04.
  2. Boucekkine, Raouf & Martinez, Blanca, 2003. "Replacement, adoption and economic dynamics: lessons from a canonical creative destruction model," Structural Change and Economic Dynamics, Elsevier, vol. 14(3), pages 339-359, September.

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