Structural Policies for Shock-Prone Developing Countries

37 Pages Posted: 20 Dec 2009

See all articles by Paul Collier

Paul Collier

University of Oxford - Blavatnik School of Government

Benedikt Goderis

The Netherlands Institute for Social Research|SCP

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2009

Abstract

Developing countries frequently face large adverse shocks to their economies. We study two distinct types of such shocks: large declines in the price of a country’s commodity exports and severe natural disasters. Unsurprisingly, adverse shocks reduce the short-term growth of constant-price GDP and we analyse which structural policies help to minimize these losses. Structural policies are incentives and regulations that are maintained for long periods, contrasting with policy responses to shocks, the analysis of which has dominated the literature. We show that some previously neglected structural policies have large effects that are specific to particular types of shock. In particular, regulations which reduce the speed of firm exit substantially increase the short-term growth loss from adverse non-agricultural export price shocks and so are particularly ill-suited to mineral exporting economies. Natural disasters appear to be better accommodated by labour market policies, perhaps because such shocks directly dislocate the population.

Keywords: commodity price shocks, natural disasters, growth, policies

JEL Classification: O47, Q38, Q54

Suggested Citation

Collier, Paul and Goderis, Benedikt, Structural Policies for Shock-Prone Developing Countries (September 15, 2009). Available at SSRN: https://ssrn.com/abstract=1473725 or http://dx.doi.org/10.2139/ssrn.1473725

Paul Collier

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

Benedikt Goderis (Contact Author)

The Netherlands Institute for Social Research|SCP ( email )

Rijnstraat 50
The Hague, 2515
Netherlands

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