Are External Shocks Responsible for the Instability of Output in Low-Income Countries?

53 Pages Posted: 23 Aug 2005

See all articles by Claudio E. Raddatz

Claudio E. Raddatz

University of Chile, School of Economics and Business

Date Written: August 2005

Abstract

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. This paper quantifies the impact of these different external shocks using a panel vector auto-regression approach and compares their relative contributions to output volatility in low income countries vis-a-vis internal factors. We find 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.

Suggested Citation

Raddatz, Claudio E., Are External Shocks Responsible for the Instability of Output in Low-Income Countries? (August 2005). World Bank Policy Research Working Paper No. 3680, Available at SSRN: https://ssrn.com/abstract=786525

Claudio E. Raddatz (Contact Author)

University of Chile, School of Economics and Business ( email )

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Santiago, R. Metropolitana 7520421
Chile

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