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Global Shocks and their Impacton Low-Income Countries

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Author Info

  • Chris Papageorgiou
  • Hans Weisfeld
  • Catherine A. Pattillo
  • Martin Schindler
  • Nicola Spatafora
  • Andrew Berg

Abstract

This paper investigates the short-run effects of the 2007-09 global financial crisis on growth in (mainly non-fuel exporting) low-income countries (LICs). Four conclusions stand out. First, for many individual LICs, 2009 was not extraordinarily calamitous; however, aggregate LIC output declined sharply because LICs were unusually synchronized. Second, the growth declines are on average well explained by the decline in export demand. Third, if the external environment facing LICs improves as forecast, their growth should rebound sharply. Finally, and contrary to received wisdom, there are few robust relationships between the cross-country growth variation and the policy and structural environment; the main exceptions are reserve coverage and labor-market flexibility.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/27.

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Length: 51
Date of creation: 01 Feb 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/27

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Related research

Keywords: External shocks; Economic growth; Economic models; Low-income developing countries; terms of trade; regression analysis; output growth; exchange rate regime; statistical significance; standard errors; trade growth; correlations; current account deficit; exchange rate regimes; trade openness; exchange rate policy; independent variables; commodity prices; trade shocks; cross-country variation; partner country; current account balance; samples; terms-of-trade shocks; partner countries; sample size; per capita income; gross capital formation; political economy; standard error; global shocks; outlier; international trade; export growth; reserve holdings; statistics; trading partners; transition economy; world markets; graphical analysis; transition economies; sample mean; open economies; trade exports; sample sizes; trade shock; outliers; correlation; import markets; domestic shocks; financial statistics; perfect substitutes; commodity trade; balance of payments; export shares; empirical model;

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References

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  1. Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
  2. 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.
  3. Chinn, Menzie David & Wei, Shang-Jin, 2008. "A Faith-based Initiative: Does a Flexible Exchange Rate Regime Really Facilitate Current Account Adjustment?," CEPR Discussion Papers 7076, C.E.P.R. Discussion Papers.
  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. 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.
  6. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
  7. Norman V. Loayza & Romain Rancière & Luis Servén & Jaume Ventura, 2007. "Macroeconomic Volatility and Welfare in Developing Countries: An Introduction," World Bank Economic Review, World Bank Group, vol. 21(3), pages 343-357, October.
  8. Ramcharan, Rodney, 2007. "Does the exchange rate regime matter for real shocks? Evidence from windstorms and earthquakes," Journal of International Economics, Elsevier, vol. 73(1), pages 31-47, September.
  9. Erik Berglof & Yevgeniya Korniyenko & Alexander Plekhanov & Jeromin Zettelmeyer, 2010. "Understanding the Crisis in Emerging Europe," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(6), pages 985-1008, September.
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Citations

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Cited by:
  1. Pietro Alessandrini & Andrea Presbitero, 2012. "Low-Income Countries and an SDR-based International Monetary System," Open Economies Review, Springer, vol. 23(1), pages 129-150, February.
  2. Berg, Andrew & Papageorgiou, Chris & Pattillo, Catherine & Spatafora, Nicola, 2011. "The end of an era? The medium- and long-term effects of the global crisis on growth in low-income countries," IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth 25, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  3. International Monetary Fund, 2012. "International Reserves in Low Income Countries," IMF Working Papers 12/7, International Monetary Fund.
  4. Pietro Alessandrini & Andrea Filippo Presbitero, 2011. "Low-Income Countries Vulnerabilities and the Need for an SDR-Based International Monetary System," Mo.Fi.R. Working Papers 55, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.

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