Decomposing changes in the conditional variance of GDP over time

- Conditional densities decomposition of the changes in the GDP conditional variance.
- Distinction among time (dependent heteroscedasticity) and covariates effect.
- A positive time effect for OECD and negative one for Africa, concentrated after 1980.
- Opposite behaviour for Asian and Latin American countries before and after 1980.
- The decomposition shows bigger effects driven by the human capital.

A well established fact in the growth empirics literature is the increasing (unconditional) variation in output per capita across countries. We propose a nonparametric decomposition of the conditional variation of output per capita across countries to capture different channels over which the variation might be increasing. We find that OECD countries have experienced diminishing conditional variation while other regions have experienced increasing conditional variation. Our decomposition suggests that most of these changes in the conditional variance of output are due to unobserved factors not accounted for by the traditional growth determinants. In addition to this we show that these factors played very different roles over time and across regions.