On the welfare cost of economic fluctuations in developing countries

Stéphane Pallage, Michel A. Robe

Research output: Contribution to journalReview articlepeer-review


Macroeconomic fluctuations are much stronger in developing countries than in the United States. Yet, while a large literature debates the welfare cost of economic fluctuations in the United States, it remains an open question how large that cost is in developing countries. Using several models, we provide such a measure. We find that the welfare cost of consumption volatility per se is far from trivial and averages a substantial multiple of the corresponding U.S. estimate. Moreover, in many poor countries, the welfare gain from eliminating volatility may in fact exceed the welfare gain from an additional percentage point of growth forever.

Original languageEnglish (US)
Pages (from-to)677-698
Number of pages22
JournalInternational Economic Review
Issue number2
StatePublished - May 2003
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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