Abstract The influential work of Ramey and Ramey [Ramey, G., Ramey, V.A., 1995. Cross-country evidence on the link between volatility and growth. American Economic Review 85, 1138-1151 (December).] highlighted an empirical relationship that has now come to be regarded as conventional wisdom-that output volatility and growth are negatively correlated. We reexamine this relationship in the context of globalization-a term typically used to describe the phenomenon of growing international trade and financial integration that has intensified since the mid-1980s. Using a comprehensive new data set, we document that, while the basic negative association between growth and volatility has been preserved during the 1990s, both trade and financial integration significantly weaken this negative relationship. Specifically, we find that, in a regression of growth on volatility and other controls, the estimated coefficient on the interaction between volatility and trade integration is significantly positive. We find a similar, although less robust, result for the interaction of financial integration with volatility. D

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A foundamental aspect of institutional design is how much society chooses to delegate unchecked power to its leaders. If, once elected, a leader cannot be restrained, society runs the risk of a tyranny of the majority, if not the tyranny of a dictator. If a leader faces too many ex post checks and balances, legislative action is too often blocked. As our critical constitutional choice we focus upon the size of the minority needed toblocklegislation,orconverselythesize of the (super)majority needed to govern. We analyze both “optimal ” constitutional design and ”positive” aspects of this process. We derive several empirical implications which we then discuss.

This paper examines the structural determinants of output volatility in developing countries, and especially the roles of geography and institutions. We investigate the volatility effects of market access, climate variability, the geographic predisposition to trade, and various measures of institutional quality. We find an especially important role for market access: remote countries are more likely to have undiversified exports and to experience greater volatility in output growth. Our results are based on Bayesian methods that allow us to address formally the problem of model uncertainty and to examine robustness across a wide range of specifications.

Summary. – This paper analyzes the impact of remittances on household consumption instability in developing countries on a large panel of developing countries. The four main results are the following: Firstly, remittances significantly reduce household consumption instability. Secondly, the insurance role played by remittances is highlighted: remittances dampen the effect of various sources of consumption instability in developing countries (natural disasters, agricultural shocks, discretionary fiscal policy). Thirdly, the insurance role played by remittances is more important in less financially developed countries. Fourthly, the overall stabilizing effect of remittances is mitigated when remittances over GDP exceed 8.5%.

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This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. We examine the short- and long-term movements of government spending relative to output in 51 countries. We find that in the short term, the main components of government spending increase with output in about half of the sample countries, with some variation across spending categories and countries. Further, we find that there is a long-term relationship between government spending and output (in line with “Wagner’s law”) for the majority of countries for at least one spending aggregate. In the short term, we find that power dispersion and government size typically dampen the positive response of government spending to output. Output volatility and financial risk, on the other hand, contribute to the procylicality

We extend the analysis in Kose, Prasad, and Terrones (2005) to provide a compre-hensive examination of the cross-sectional relationship between growth and macro-economic volatility over the past four decades. We also document that while there has generally been a negative relationship between volatility and growth during this period, the nature of this relationship has been changing over time and across dif-ferent country groups. In particular, we detect major shifts in this relationship after trade and financial liberalizations. In addition, our results show that volatility stemming from the main components of domestic demand is negatively associated with economic growth. [JEL E32, F36, F43] During his distinguished tenure as the Economic Counselor of the IMF andDirector of its Research Department, Michael Mussa made many important contributions to the literature on globalization and its implications for both indus-trial and developing countries. Having been at the Fund during the trying periods of the Asian and Russian crises, Mussa had a special appreciation for the chal-lenges faced by emerging market economies in trying to balance the benefits and risks of globalization. Many of his writings on this topic have focused on how developing countries could attain the growth benefits of globalization while min-imizing their susceptibility to financial and balance of payments crises. Indeed, the broader issue of understanding the complex relationship between macroeconomic volatility and economic growth has long been a challenge for econ-omists. During the 1980s, it was generally accepted that the impact of volatility on *M. Ayhan Kose is an Economist, Eswar S. Prasad is a Division Chief, and Marco E. Terrones is a Senior Economist—all three are in the Research Department of the IMF. The authors are grateful to Luis Catão and Gian Maria Milesi-Ferretti for their helpful comments and suggestions. We thank Nick Nedelchev and Smita Wagh for excellent research assistance.

Abstract: This paper exploits the significant positive response of the share of agricultural value added and GDP per capita growth to variations in the international prices for agricultural commodities and rainfall to construct instrumental variables estimates of the causal effect that changes in the size of the agricultural sector and GDP per capita growth have on the urbanization rate for a panel of 41 African countries during the period 1960-2007. The paper's two main findings are that: (i) decreases in the share of agricultural value added lead to a significant increase in the urbanization rate; (ii) conditional on changes in the share of agricultural value added GDP per capita growth does not significantly affect the urbanization rate. The empirical results confirm the predictions of theoretical models that economic shocks which differentially affect the return across sectors matter for the rural-urban migration decision, and that economic growth mostly affects the urbanization rate through a sector shift out of agriculture.

In this paper we analyze empirically how labor market institutions influence the cyclical volatility of output and inflation in a sample of 20 OECD countries. Our results suggest that highly coordinated wage bargaining system have a dampening impact on inflation volatility, whereas countries characterized by high union density tend to experience more volatile movements in output. JEL Classification: E31, E32