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Are Crises Good for Long-Term Growth?: The Role of Political Institutions

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  • Eduardo A. Cavallo
  • Alberto F. Cavallo

Abstract

This paper provides empirical evidence for the importance of institutions in determining the outcome of crises on long-term growth. Once unobserved country-specific effects and other sources of endogeneity are accounted for, political institutions affect growth through their interaction with crises. The results suggest that only countries with strong democracies, high levels of political competition and external constraints on government can potentially benefit from crises and use them as opportunities to enhance long-term output per capita and productivity growth.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6517.

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Date of creation: Sep 2008
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Handle: RePEc:idb:brikps:6517

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Keywords: Financial Crises & Economic Stabilization; Economic Development & Growth; WP-643;

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References

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Cited by:
  1. Eiji Yamamura, 2013. "Institution and decomposition of natural disaster impact on growth," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 40(6), pages 720 - 738, November.
  2. Abdilahi Ali & Katsushi S. Imai, 2013. "Crises, Economic Integration and Growth Collapses in African Countries," The School of Economics Discussion Paper Series, Economics, The University of Manchester 1302, Economics, The University of Manchester.
  3. Markus Jorra, 2011. "The Heterogeneity of Default Costs: Evidence from Recent Sovereign Debt Crises," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201151, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  4. Doner, Richard, 2012. "Success as Trap? Crisis Response And Challenges To Economic Upgrading in Export-Oriented Southeast Asia," Working Papers, JICA Research Institute 45, JICA Research Institute.
  5. Benarroch, Michael & Pandey, Manish, 2012. "The relationship between trade openness and government size: Does disaggregating government expenditure matter?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(1), pages 239-252.
  6. ATI Abdessatar & BEN JAZIA Rachida, 2013. "Institutional Quality And Financial Stress: Experience From Emerging Country," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 8(3), pages 5-20, December.
  7. Barry Eichengreen, 2011. "Crisis and Growth in the Advanced Economies: What We Know, What We Do not, and What We Can Learn from the 1930s," Comparative Economic Studies, Palgrave Macmillan, Palgrave Macmillan, vol. 53(3), pages 383-406, September.
  8. Fidrmuc, Jan & Tichit, Ariane, 2013. "How I learned to stop worrying and love the crisis," Economic Systems, Elsevier, Elsevier, vol. 37(4), pages 542-554.
  9. Yamamura, Eiji, 2011. "The changing effect of legal origin on death tolls in natural disasters from 1960 to 2008," MPRA Paper, University Library of Munich, Germany 33112, University Library of Munich, Germany.
  10. Andreas Assiotis & Kevin Sylwester, 2013. "Do the effects of corruption upon growth differ between democracies and autocracies?," University of Cyprus Working Papers in Economics, University of Cyprus Department of Economics 06-2013, University of Cyprus Department of Economics.

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