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The volatility of consumption and output with increasing industrialization

By Paul Gomme and Yan Zhao


Consumption is more volatile than output in developing countries while it is less volatile than output in developed economies. This paper shows that the relatively large home sector in developing economies contributes to this difference, and the driving force for this difference is technology. Thus this paper suggests that volatile market consumption is almost inevitable at the start of industrialization, when the technology level in the market sector is just above that of the home sector.

Topics: E21 - Consumption; Saving; Wealth
Year: 2010
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