Raddatz, Claudio2012-06-202012-06-202005-08https://hdl.handle.net/10986/8612External 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.CC BY 3.0 IGOABSOLUTE TERMSABSOLUTE VALUEADVERSE SHOCKSAGGREGATE DEMANDAUTOREGRESSIONAVERAGE GROWTHAVERAGE INCOMEAVERAGE INCOME LEVELBENCHMARKBUSINESS CYCLEBUSINESS CYCLESCOUNTRY CHARACTERISTICSCOUNTRY REGRESSIONSCOUNTRY SPECIFICCOVARIANCE MATRIXCREDIT MARKETCURRENT ACCOUNTDAMAGESDEBTDEPENDENT VARIABLEDEVELOPING COUNTRIESDEVELOPMENT ASSISTANCEDEVELOPMENT ECONOMICSDYNAMIC RESPONSESECONOMIC ACTIVITYECONOMIC CONDITIONSECONOMIC FLUCTUATIONSECONOMIC GROWTHECONOMIC IMPACTECONOMIC PERFORMANCEECONOMICS RESEARCHEMERGING MARKETSEMPIRICAL ANALYSISEXCHANGE RATEEXCHANGE RATESEXOGENOUS SHOCKSEXOGENOUS VARIABLESEXPLANATORY POWEREXPORTSEXTERNAL CONDITIONSEXTERNAL FACTORSEXTERNAL SHOCKEXTERNAL SHOCKSFINANCIAL INSTITUTIONSFINANCIAL MARKETSFIXED EXCHANGE RATESFORECASTSFOREIGN AIDFOREIGN CAPITALGDP PER CAPITAGLOBAL ECONOMYGLOBAL LEVELGROWTH RATESGROWTH REGRESSIONSHUMAN CAPITALIDENTIFICATION ASSUMPTIONSINCOMEINCOME DISTRIBUTIONINCOME GROUPINCOME GROUPSINTEREST RATEINTEREST RATESINTERNAL FACTORSINTERNATIONAL MARKETSLATIN AMERICANLDCSLOCAL CURRENCYLONG RUNLOW INCOMELOW-INCOME COUNTRIESMACROECONOMIC STABILITYMACROECONOMIC VARIABLESMACROECONOMICSMIDDLE INCOME COUNTRIESMIDDLE-INCOME COUNTRIESMONETARY POLICYNATIONAL ACCOUNTSNATIONAL INCOMENEGATIVE EFFECTNEGATIVE IMPACTNEGATIVE SHOCKNEGATIVE SHOCKSNOMINAL INTEREST RATE0 HYPOTHESISOUTPUT GROWTHOUTPUT VOLATILITYPOINT ESTIMATEPOINT ESTIMATESPOLICY DEBATEPOLICY RESEARCHPOLITICAL INSTABILITYPOOR COUNTRIESPOOR COUNTRYPOSITIVE EFFECTPOSITIVE IMPACTPRICE FLUCTUATIONSPRICE INDEXESPRIMARY COMMODITIESREAL APPRECIATIONREAL GDPREAL INTERESTREAL INTEREST RATEREAL OUTPUTRELATIVE CONTRIBUTIONRELATIVE CONTRIBUTIONSRELATIVE IMPORTANCERICH COUNTRIESSIGNIFICANT EFFECTSIGNIFICANT IMPACTSIGNIFICANT NEGATIVESTANDARD DEVIATIONSTRUCTURAL CHARACTERISTICSSUB-SAHARAN AFRICATERMS OF TRADETERMS-OF-TRADE SHOCKSTIME SERIESTOTAL OUTPUTWORLD INCOME DISTRIBUTIONWorld Bank10.1596/1813-9450-3680