Risk and Development in Developing Countries

Abstract

This paper examines the impact of risk management on economic development in developing countries. Based on data from the World Bank, we use a sample of seventy-eight developing economies and find that selected risk indicators do have an effect on economic development in these countries. We observe that the coefficient estimates of two explanatory variables do not have their anticipated sign due possibly to the severe degree of collinearity between them. Regression results show that over three-quarters of cross-developing country variations in purchasing power parity per capita gross national income can be explained by its linear dependency on the number of years over which the country was in a large recession both for the 1991-2000 and the 2001-2010 periods, the adult male mortality rate, the homicide rate, the risk preparation index, and the $2.50 a day poverty headcount ratio. The study's findings were objective in the sense that raw data was not "fitted" in a bias way to support a certain view and stemmed directly from the data used in the World Bank report. Statistical results of such empirical examination will assist governments in developing countries identify risk management strategies that may be used as powerful instruments for economic development.   JEL Classifications: O12,O15,O40