Idiosyncratic Risk and Development in Developing Countries

Abstract

This paper examines the impact of idiosyncratic risk management on economic development in developing countries. Based on data from the World Bank, we use a sample of twenty-seven developing economies and find that selected indicators related to risk management at the household level do have a statistically significant effect on economic development in these countries. Regression results show that almost four-fifths of cross-developing country variations in purchasing power parity per capita gross national income can be explained by its linear dependency on the percentage of the population aged over 25 who have completed the tertiary level of education, education quality as measured by the Programme for International Student Assessment reading mean score, the under-five mortality rate, and access to social insurance as measured by the percentage of the population aged 60 and over who are beneficiaries of social insurance.

Statistical results of such empirical examination will assist governments in developing countries identify idiosyncratic risk management strategies that may be used as powerful instruments for economic development.