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Growth Dynamics: The Myth of Economic Recovery

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  • Valerie Cerra
  • Sweta Chaman Saxena

Abstract

Using panel data for a large set of high-income, emerging market, developing, and transition countries, we find robust evidence that the large output loss from financial crises and some types of political crises is highly persistent. The results on financial crises are also highly robust to the assumption on exogeneity. Moreover, we find strong evidence of growth over optimism before financial crises. We also find a distinction between the output impact of civil wars versus other crises, in that there is a partial output rebound for civil wars but no significant rebound for financial crises or the other political crises. (JEL D72, D74, E32, E44, O17, O47)

Suggested Citation

  • Valerie Cerra & Sweta Chaman Saxena, 2008. "Growth Dynamics: The Myth of Economic Recovery," American Economic Review, American Economic Association, vol. 98(1), pages 439-457, March.
  • Handle: RePEc:aea:aecrev:v:98:y:2008:i:1:p:439-57
    Note: DOI: 10.1257/aer.98.1.439
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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