As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Kangni Roland Kpodar. , senior economist in the IMF's Strategy, Policy, and Review Department.

Kangni Roland Kpodar will present his research work Financial Deepening, Terms of Trade Shocks, and Growth Volatility in Low-Income Countries co-authored with Maëlan Le Goff and Raju Jan Singh.

Abstract: This paper contributes to the literature by looking at the possible relevance of the structure of the financial system—whether financial intermediation is performed through banks or markets—for macroeconomic volatility, against the backdrop of increased policy attention on strengthening growth resilience. With low-income countries (LICs) being highly vulnerable to large and frequent terms of trade shocks, the paper focuses on a sample of 38 LICs over the period 1978-2012 and finds that banking sector development acts as a shock-absorber in poor countries, dampening the transmission of terms of trade shocks to growth volatility. The peak pass-through of terms of trade shocks to growth volatility is reached within a year and then gradually dies out. Expanding the sample to 121 developing countries confirms that banking sector development boosts resilience to terms of trade shocks, although this effect fades away as economies grow richer. Stock market development, by contrast, appears neither to be a shock-absorber nor a shock-amplifier for most economies. These findings are consistent across a range of econometric estimators, including fixed effect, system GMM, and local projection estimates.