Exogenous Volatility and the Size of Government in Developing Countries

50 Pages Posted: 24 Sep 2013

See all articles by Markus Brückner

Markus Brückner

National University of Singapore (NUS)

Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); World Bank - Development Research Group (DECRG)

Date Written: September 2013

Abstract

This paper presents instrumental variables estimates of the effects of GDP per capita volatility on the size of government. We show that for a panel of 157 countries spanning more than half a century rainfall volatility has a significant positive effect on GDP per capita volatility in countries with above median temperatures. In these countries rainfall volatility has also a significant positive reduced-form effect on the GDP share of government. There is no significant reduced-form effect in the sample of countries with below median temperatures where rainfall volatility has no significant effect on GDP per capita volatility. Using rainfall volatility as an instrumental variable in the sample of countries with above median temperatures yields that greater GDP per capita volatility leads to a significantly higher GDP share of government.

Keywords: government size, Volatility

JEL Classification: E6, H1, O1

Suggested Citation

Brückner, Markus and Gradstein, Mark, Exogenous Volatility and the Size of Government in Developing Countries (September 2013). CEPR Discussion Paper No. DP9657, Available at SSRN: https://ssrn.com/abstract=2329791

Markus Brückner (Contact Author)

National University of Singapore (NUS) ( email )

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Mark Gradstein

Ben-Gurion University of the Negev - Department of Economics ( email )

Beer-Sheva 84105
Israel
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+97 2 8647 2941 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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World Bank - Development Research Group (DECRG)

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