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Did Fiscal Stimulus Lift Developing Asia out of the Global Crisis? A Preliminary Empirical Investigation

Listed author(s):
  • Hur, Seok-Kyun

    (Asian Development Bank)

  • Jha, Shikha

    (Asian Development Bank)

  • Park, Donghyun

    (Asian Development Bank)

  • Quising, Pilipinas

    (Asian Development Bank)

Developing Asia has weathered the global economic crisis well and is experiencing a rapid, robust V-shaped recovery. According to conventional wisdom, the fiscal stimulus packages put in place by the region’s governments played a key role in the region’s superior postcrisis performance. The central objective of this paper is to empirically test this conventional wisdom. To do so, we first examine the state of the precrisis fiscal health in major developing Asian countries, and then explore the size and structure of the fiscal stimulus packages that they implemented. Our empirical analysis centers on assessing the impact of fiscal stimulus on developing Asia’s gross domestic product growth during the crisis. Our main finding is that the stimulus has had a significant positive impact. This suggests that fiscal policy has helped the region cushion the adverse impact of the collapse in global trade. The immediate implication for regional policymakers is that proactive use of countercyclical fiscal policy can limit the slowdown of economic activity arising from severe external shocks. The broader, more fundamental policy implication is that it is in the region’s best self-interest to adhere to its long-standing commitment to fiscal discipline so that it has fiscal space to cope with tail risks.

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Paper provided by Asian Development Bank in its series ADB Economics Working Paper Series with number 215.

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Length: 57 pages
Date of creation: Aug 2010
Handle: RePEc:ris:adbewp:0215
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