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Growth Dynamics: The Myth of Economic Recovery

  • Valerie Cerra

    (International Monetary Fund)

  • Sweta C. Saxena

    (University of Pittsburgh)

Using panel data for a large number of countries, we find that economic contractions are not followed by offsetting fast recoveries. Trend output lost is not regained, on average. Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth, whereas we find absolute convergence in expansions. The output costs of political and financial crises are permanent on average and long-term growth is negatively linked to volatility. These results also imply that panel data studies can help identify the sources of growth and that economic models should be capable of explaining growth and fluctuations within the same framework.

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File URL: http://econwpa.repec.org/eps/mac/papers/0508/0508008.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0508008.

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Length: 44 pages
Date of creation: 07 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0508008
Note: Type of Document - pdf; pages: 44
Contact details of provider: Web page: http://econwpa.repec.org

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