Why is GDP growth so much more volatile in poor countries than in rich ones? We identify four possible reasons: (i) poor countries specialize in more volatile sectors; (ii) poor countries specialize in fewer sectors; (iii) poor countries experience more frequent and more severe aggregate shocks (e.g. from macroeconomic policy); and (iv) poor countries' macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in. We show how to decompose volatility into these four sources, quantify their contribution to aggregate volatility, and study how they relate to the stage of development. We document the following regularities. First, as countries develop, their productive structure moves from more volatile to less volatile sectors. Second, the level of specialization declines with development at early stages, and slowly increases at later stages of development. Third, the volatility of country- specific macroeconomic shocks falls with development. Fourth, the covariance between sector-specific and country-specific shocks does not vary systematically with the level of development. We argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work.

/pdf/volatility-and-development-3lq49zbcc0.pdf

Volatility and Development

https://www.sas.upenn.edu/~egme/pp/JPUBE97.pdf

On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture

In this paper, we present evidence that policy volatility exerts a strong and direct negative impact on growth. Using data for 93 countries, we construct measures of policy volatility based on the standard deviation of the residuals from country-specific regressions of government consumption on output. Undisciplined governments that implement frequent and large changes in government spending unrelated to the state of the business cycle generate lower economic growth. We employ both instrumental variables and panel estimation to address concerns of omitted variables and endogeneity. A 1 standard deviation increase in policy volatility reduces long-term economic growth by about 0.74% in the panel regressions and by more than 1 percentage point in the cross-section.

/pdf/policy-volatility-institutions-and-economic-growth-1uqmoqz81o.pdf

Policy Volatility, Institutions, and Economic Growth

https://www.sas.upenn.edu/~egme/pp/JDE97.pdf

Terms-of-trade uncertainty and economic growth

The 1990s emerging-markets crises were characterized by sudden reversals in inflows of foreign capital followed by unusually large declines in current account deficits, private expenditures, production, and prices of nontradable goods relative to tradables. This paper shows that these Sudden Stops can be the outcome of the equilibrium dynamics of a flexible-price economy with imperfect credit markets. Foreign debt is denominated in units of tradables and a liquidity constraint links credit-market access to the income generated in the nontradables sector and the relative price of nontradables. Sudden Stops occur when real shocks of foreign or domestic origin, or policy-induced shocks make this constraint binding. Sudden Stops are not reflected in long-run business cycle statistics but still they entail nontrivial welfare costs. These results question crises-management policies seeking to impose direct controls on private capital flows and favor those that work to weaken credit frictions.

Credit, Prices, and Crashes: Business Cycles with a Sudden Stop

This paper explores the effect of policy variability (or frequency of regime switching) on economic growth and welfare. We study a one-sector growth model where investment can be subsidized at either a positive rate or not subsidized at all. We find that the lack of persistence in policies per se need not be welfare reducing and that it is likely to decrease growth. Higher variability implies more frequent changes in consumption and investment. But, by creating a stronger intertemporal link across regimes, variability reduces the fluctuation in investment rates, thus decreasing the magnitude of changes in consumption and increasing welfare.

/pdf/policy-variability-and-economic-growth-4a1k4m7z13.pdf

Policy variability and economic growth

Este estudio investiga la asociacion entre estructura familiar y acortamiento en preescolares argentinos (2-5 anos) usando datos de la Encuesta Nacional de Nutricion y Salud del 2005 (N= 11,632) y regresiones logisticas. Nuestros resultados muestran que las chances de acortamiento de un nino/a en una familia nuclear extensa son menores que para aquellos en una familia nuclear. Ademas, el pertenecer a una familia monoparental no aumenta las chances de acortamiento con respecto a las de un nino en una familia con ambos padres. Nuestro trabajo senala la importancia de la estructura familiar para la nutricion de los ninos/as.

/pdf/el-rol-de-la-estructura-familiar-en-el-acortamiento-de-la-2xwc6ped34.pdf

María Eugenia Muniagurria

Papers

Policy variability and economic growth

El rol de la estructura familiar en el acortamiento de la estatura (baja talla por edad) de preescolares argentinos entre dos a cinco años