Discussion Paper Details

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Title: Exogenous Volatility and the Size of Government in Developing Countries

Author(s): Markus Brückner and Mark Gradstein

Publication Date: September 2013

Keyword(s): government size and Volatility

Programme Area(s): Development Economics

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.

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Bibliographic Reference

Brückner, M and Gradstein, M. 2013. 'Exogenous Volatility and the Size of Government in Developing Countries'. London, Centre for Economic Policy Research.