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Two Tales of Adjustment: East Asian Lessons for European Growth

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  • Anusha Chari
  • Peter Blair Henry

Abstract

In 2008, euro area governments instituted fiscal stimulus to counteract the shock of the Global Financial Crisis. In 2010, they changed tack and pursued consolidation. East Asia also implemented stimulus in response to its 1997–98 financial crisis but, unlike Europe, continued fiscal expansion until growth recovered. The baseline difference between the average growth rate of the east Asian countries and the European Periphery/GIIPS prior to their respective crises was 4.21 percentage points. This difference widens to 7.18 percentage points following the European pivot to austerity in region-specific crisis event time. Panel regressions confirm the statistical significance of this 2.97 percentage point increase in the difference-in-difference estimate suggesting that more gradual fiscal consolidation in the GIIPS might have promoted stronger recovery.

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  • Anusha Chari & Peter Blair Henry, 2015. "Two Tales of Adjustment: East Asian Lessons for European Growth," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 164-196, May.
    • Handle: RePEc:pal:imfecr:v:63:y:2015:i:1:p:164-196
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    Cited by:

    1. Carlos A. Ibarra, 2016. "Investment, asset market, and the relative unit labor cost in Mexico," Economic Change and Restructuring, Springer, vol. 49(4), pages 339-364, November.
    2. Terzi, Alessio, 2020. "Macroeconomic adjustment in the euro area," European Economic Review, Elsevier, vol. 128(C).
    3. Laura Alfaro & Gonzalo Asis & Anusha Chari & Ugo Panizza, 2017. "Lessons Unlearned? Corporate Debt in Emerging Markets," NBER Working Papers 23407, National Bureau of Economic Research, Inc.
    4. Anusha Chari & Peter Blair Henry & Hector Reyes, 2021. "The Baker Hypothesis: Stabilization, Structural Reforms, and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 35(3), pages 83-108, Summer.
    5. Anusha Chari & Peter Blair Henry, 2014. "Learning from the Doers: Developing Country Lessons for Advanced Economy Growth," American Economic Review, American Economic Association, vol. 104(5), pages 260-265, May.
    6. Alfaro, Laura & Asis, Gonzalo & Chari, Anusha & Panizza, Ugo, 2019. "Corporate debt, firm size and financial fragility in emerging markets," Journal of International Economics, Elsevier, vol. 118(C), pages 1-19.
    7. Vagliasindi,Maria & Gorgulu,Nisan, 2021. "What Have We Learned about the Effectiveness of Infrastructure Investment as a FiscalStimulus ? A Literature Review," Policy Research Working Paper Series 9796, The World Bank.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F68 - International Economics - - Economic Impacts of Globalization - - - Policy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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