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Are external shocks responsible for the instability of output in low income countries?, Volume 1
 
Author:Raddatz, Claudio; Collection Title:Policy, Research working paper ; no. WPS 3680
Country:World; Date Stored:2005/08/10
Document Date:2005/08/01Document Type:Policy Research Working Paper
SubTopics:Achieving Shared Growth; Economic Theory & Research; Macroeconomic Management; Inequality; Fiscal & Monetary PolicyLanguage:English
Region:The World RegionReport Number:WPS3680
Volume No:1  

Summary: External shocks, such as commodity price fluctuations, natural disasters, and the role of the international economy, are often blamed for the poor economic performance of low-income countries. The author quantifies the impact of these different external shocks using a panel vector autoregression (VAR) approach and compares their relative contributions to output volatility in low-income countries vis-à-vis internal factors. He finds that external shocks can only explain a small fraction of the output variance of a typical low-income country. Internal factors are the main source of fluctuations. From a quantitative perspective, the output effect of external shocks is typically small in absolute terms, but significant relative to the historic performance of these countries.

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