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The end of an era? The medium- and long-term effects of the global crisis on growth in low-income countries

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  • Berg, Andrew
  • Papageorgiou, Chris
  • Pattillo, Catherine
  • Spatafora, Nicola

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 Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO) in its series IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth with number 25.

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Date of creation: 2011
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Handle: RePEc:zbw:iamo11:25

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Keywords: Global financial crisis; external shocks; low-income countries; medium- and long-term growth; impulse response functions; growth spells; panel growth regressions;

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References

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  1. Sanjay Reddy & Camelia Minoiu, 2009. "Real Income Stagnation of Countries 1960-2001," Journal of Development Studies, Taylor & Francis Journals, vol. 45(1), pages 1-23.
  2. 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.
  3. Paul Collier & Benedikt Goderis, 2009. "Structural Policies for Shock-Prone Developing Countries," Economics Series Working Papers CSAE WPS/2009-03, University of Oxford, Department of Economics.
  4. Davide Furceri & Annabelle Mourougane, 2009. "The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries," OECD Economics Department Working Papers 699, OECD Publishing.
  5. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries," IMF Working Papers 10/132, International Monetary Fund.
  6. Valerie Cerra & Sweta Chaman Saxena, 2007. "Growth dynamics: the myth of economic recovery," BIS Working Papers 226, Bank for International Settlements.
  7. Jean Pisani-Ferry & Bruno van Pottelsberghe, 2009. "Handle with care! Post-crisis growth in the EU," Policy Briefs 301, Bruegel.
  8. William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers 4474, National Bureau of Economic Research, Inc.
  9. International Monetary Fund, 2009. "Spillovers From the Rest of the World Into Sub-Saharan African Countries," IMF Working Papers 09/155, International Monetary Fund.
  10. 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, Elsevier, vol. 34(2), pages 143-173, October.
  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. Sergei Antoshin & Andrew Berg & Marcos Souto, 2008. "Testing for Structural Breaks in Small Samples," IMF Working Papers 08/75, International Monetary Fund.
  13. 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.
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Cited by:
  1. 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.
  2. Era Dabla-Norris & Yasemin Bal-Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries," IMF Working Papers 12/264, International Monetary Fund.
  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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