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The End of An Era? the Medium- and Long-Term Effects of the Global Crisison Growth in Low-Income Countries

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  • Chris Papageorgiou
  • Andrew Berg
  • Catherine A. Pattillo
  • Nicola Spatafora

Abstract

This paper investigates the medium- and long-term growth effects of the global financial crises on Low-Income Countries (LICs). Using several methodological approaches, including impulse response function analysis, growth spells techniques and panel regressions, we show that external demand (ED) shocks are not historically associated with sharp declines in output growth. Given existing evidence that LICs were primarily impacted by such a shock in the global financial crisis, our analysis provides some optimism on the chances that LICs will avoid a protracted period of slow growth. However, we also show that there seem to be persistent output losses associated with ED shocks in the medium-run. In terms of policy implications, our analysis provides evidence that countries with lower deficits, lower debt, more flexible exchange rate regimes, and a higher stock of international reserves are more likely to dampen the effects of an ED shock on growth.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/205.

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Length: 29
Date of creation: 01 Sep 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/205

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Keywords: External shocks; Economic growth; Low-income developing countries; terms of trade; pre-crisis; post-crisis growth; financial crisis; exchange rate regime; global financial crisis; global shocks; financial crises; output growth; exchange rate regimes; recession; banking crises; domestic demand; tradable goods; economic cooperation; world economy; macroeconomic policies; trade shocks; political economy; economic crisis; dynamic effects; global recession; global financial crises; trade shock; commodity prices; trade partner; income distribution; commodity exporters; terms of trade shocks; transition economies; export markets; partner country; global economic crisis; currency crises; partner countries;

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References

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  1. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries," IMF Working Papers 10/132, International Monetary Fund.
  2. Furceri, Davide & Mourougane, Annabelle, 2012. "The effect of financial crises on potential output: New empirical evidence from OECD countries," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 822-832.
  3. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  4. International Monetary Fund, 2009. "Spillovers From the Rest of the World Into Sub-Saharan African Countries," IMF Working Papers 09/155, International Monetary Fund.
  5. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," CSAE Working Paper Series 2009-03, Centre for the Study of African Economies, University of Oxford.
  6. Sanjeev Gupta & Catherine A. Pattillo & Kevin Joseph Carey, 2005. "Sustaining Growth Accelerations and Pro-Poor Growth in Africa," IMF Working Papers 05/195, International Monetary Fund.
  7. Azariadis, Costas & Stachurski, John, 2005. "Poverty Traps," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 5 Elsevier.
  8. Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-57, March.
  9. Jean Pisani-Ferry & Bruno van Pottelsberghe, 2009. "Handle with care! Post-crisis growth in the EU," Policy Briefs 301, Bruegel.
  10. Sanjay G. Reddy & Camelia Minoiu, 2005. "Real Income Stagnation of Countries, 1960-2001," Development and Comp Systems 0509004, EconWPA.
  11. Chris Papageorgiou & Hans Weisfeld & Catherine A. Pattillo & Martin Schindler & Nicola Spatafora & Andrew Berg, 2011. "Global Shocks and their Impacton Low-Income Countries," IMF Working Papers 11/27, International Monetary Fund.
  12. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
  13. Sergei Antoshin & Andrew Berg & Marcos Souto, 2008. "Testing for Structural Breaks in Small Samples," IMF Working Papers 08/75, International Monetary Fund.
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Cited by:
  1. Era Dabla-Norris & Yasemin Bal-Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries," IMF Working Papers 12/264, International Monetary Fund.
  2. SENBETA, Sisay Regassa, 2012. "How important are external shocks in explaining growth in Sub-Saharan Africa? Evidence from a Bayesian VAR," Working Papers 2012010, University of Antwerp, Faculty of Applied Economics.
  3. Montfort Mlachila & Tidiane Kinda, 2011. "The Quest for Higher Growth in the WAEMU Region," IMF Working Papers 11/174, International Monetary Fund.

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