diversification. Production makes use of different input varieties, which are subject to imperfectly correlated shocks. Technological … lower the volatility of output growth. Technological complexity evolves endogenously in response to profit incentives. The … decline in volatility thus arises as a by-product of firms' incentives to increase profits and is hence a likely outcome of …

volatility into these four sources, quantify their contribution to aggregate volatility, and study how they relate to the stage …, and slowly increases at later stages of development. Third, the volatility of country- specific macroeconomic shocks falls … with the level of development. We argue that many theories linking volatility and development are not consistent with these …