Another key difference between small and large developing countries is that the latter are more susceptible to the shocks to the real exchange rate, which likely reflect the prevalence of domestic demand shocks and Balassa-Samuelson effect. At the same time, shocks to world demand conditions play a comparable role in small and large developing countries. This suggests that there are no perceptible differences between small and large developing countries in the degree of their integration into the world trade markets.

Turning to developed economies, our finding that large developed countries are more susceptible to world demand shocks relative to small developed countries, is likely a reflection of the historical importance of the trade relationships between the US and other developed countries (North-North trade) (UNCTAD, 2015). We find no difference in the effects of all other shocks.

||||**Table 4. Va**<br>**small**<br>|**riance dec**<br>|**ompositi**<br>|**on of G**<br>**A.**<br>|**DP volatil**<br>**Develo**|**ity: By leve**<br>**ping count**<br>**large**<br>|**l of devel**<br>**ries**<br>|**opment an**<br>|**d country size**<br>|<br>|
|---|---|---|---|---|---|---|---|---|---|---|---|---|
||N|mean|median|p25|p75|N|mean|median|p25|p75|mean diff|median diff|
|**rrate_us**|9|0.072|0.042|0.027|0.083|11|0.157|0.124|0.083|0.134|0.084**|0.082**|
|**(log) gdp_us**|9|0.059|0.072|0.030|0.096|11|0.094|0.030|0.019|0.202|0.035|-0.042|
|**(log) govexp**|9|0.124|0.120|0.079|0.175|11|0.131|0.080|0.024|0.164|0.007|-0.040|
|**tby**|9|0.081|0.064|0.027|0.121|11|0.070|0.059|0.013|0.096|-0.011|-0.005|
|**rrate**|9|0.029|0.027|0.012|0.039|11|0.032|0.021|0.013|0.029|0.003|-0.006|
|**(log) gdp**|9|0.589|0.614|0.514|0.630|11|0.391|0.377|0.289|0.583|-0.198**|-0.237|
|**(log) reer**|9|0.046|0.023|0.013|0.029|11|0.125|0.115|0.031|0.182|0.079*|0.092**|
||||**small**<br>|||**B.**<br>|**Develo**|**ped countr**<br>**large**<br>|**ies**<br>||||
||N|mean|median|p25|p75|N|mean|median|p25|p75|mean diff|median diff|
|**rrate_us**|15|0.105|0.080|0.018|0.177|13|0.116|0.076|0.059|0.116|0.011|-0.004|
|**(log) gdp_us**|15|0.080|0.033|0.006|0.169|13|0.198|0.137|0.074|0.321|0.118**|0.104*|
|**(log) govexp**|15|0.090|0.067|0.039|0.118|13|0.074|0.036|0.010|0.130|-0.016|-0.032|
|**tby**|15|0.074|0.046|0.014|0.101|13|0.042|0.018|0.009|0.046|-0.032|-0.028|
|**rrate**|15|0.035|0.014|0.007|0.056|13|0.034|0.032|0.024|0.039|-0.001|0.019|
|**(log) gdp**|15|0.577|0.587|0.433|0.695|13|0.509|0.552|0.488|0.561|-0.068|-0.035*|
|**(log) reer**|15|0.040|0.012|0.003|0.069|13|0.028|0.022|0.010|0.049|-0.012|0.010|

Note: Authors’ calculations. * p<0.10, ** p<0.05, *** p<0.01 To better understand the differences between small and large economies within each development group we estimate panel VARs separately for large and small countries, while conditioning on the developmental status. The hypothesis is that impulse responses in the VARs differ between small and large countries, especially for the developing countries group, mirroring our variance decomposition results. Figure **5** contrasts the resulting impulse responses of GDP to various shocks in small and large _developing_ countries. By comparing these responses with the unconditional ones for large and small countries reported in Figures **1** and **2** in Section 4.2, it is easy to see that they are very similar. That is, in terms of external variables, a rise in the US real interest rate leads to a contraction in large developing economies, but a mild expansion in small 19