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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.

Suggested Citation

  • Chris Papageorgiou & Andrew Berg & Catherine A Pattillo & Nicola Spatafora, 2010. "The End of An Era? the Medium- and Long-Term Effects of the Global Crisison Growth in Low-Income Countries," IMF Working Papers 10/205, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/205
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    References listed on IDEAS

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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. 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.
    3. 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.
    4. 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.
    5. Paul Collier & Benedikt Goderis, 2009. "Structural policies for shock-prone developing countries," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 703-726, October.
    6. 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.
    7. 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.
    8. Sergei Antoshin & Andrew Berg & Marcos R Souto, 2008. "Testing for Structural Breaks in Small Samples," IMF Working Papers 08/75, International Monetary Fund.
    9. Chris Papageorgiou & Hans Weisfeld & Catherine A Pattillo & Martin Schindler & Nicola Spatafora & Andrew Berg, 2011. "Global Shocks and their Impacton Low-Income Countries; Lessons From theglobal Financial Crisis," IMF Working Papers 11/27, International Monetary Fund.
    10. Sanjeev Gupta & Catherine A Pattillo & Kevin J Carey, 2005. "Sustaining Growth Accelerations and Pro-Poor Growth in Africa," IMF Working Papers 05/195, International Monetary Fund.
    11. International Monetary Fund, 2009. "Spillovers From the Rest of the World Into Sub-Saharan African Countries," IMF Working Papers 09/155, International Monetary Fund.
    12. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries; Global Drivers and Growth Implications," IMF Working Papers 10/132, International Monetary Fund.
    13. Jean Pisani-Ferry & Bruno van Pottelsberghe, 2009. "Handle with care! Post-crisis growth in the EU," Policy Briefs 301, Bruegel.
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    Cited by:

    1. Montfort Mlachila & Tidiane Kinda, 2011. "The Quest for Higher Growth in the WAEMU Region; The Role of Accelerations and Decelerations," IMF Working Papers 11/174, International Monetary Fund.
    2. repec:wsi:serxxx:v:60:y:2015:i:02:n:s0217590815500125 is not listed on IDEAS
    3. Era Dabla-Norris & Yasemin Bal Gunduz, 2012. "Exogenous Shocks and Growth Crises in Low-Income Countries; A Vulnerability Index," IMF Working Papers 12/264, International Monetary Fund.
    4. Bal Gündüz, Yasemin, 2016. "The Economic Impact of Short-term IMF Engagement in Low-Income Countries," World Development, Elsevier, vol. 87(C), pages 30-49.
    5. 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.

    More about this item

    Keywords

    Demand; Economic growth; Financial crisis; External shocks; Low-income developing countries; Global financial crisis; low-income countries; medium- and long-term growth; impulse response functions; growth spells; panel growth regressions; terms of trade; pre-crisis; post-crisis growth; exchange rate regime; Macroeconomic Analyses of Economic Development; Fiscal and Monetary Policy in Development;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • 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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