Working Paper: NBER ID: w23467
Authors: Joshua Aizenman; Yothin Jinjarak; Gemma Estrada; Shu Tian
Abstract: The pronounced and persistent impact of the global financial crisis of 2008 motivates our empirical analysis of the role of institutions and macroeconomic fundamentals on countries’ adjustment to shocks. Our empirical analysis shows that the associations of growth level, growth volatility, shocks, institutions, and macroeconomic fundamentals have changed in important ways after the crisis. GDP growth across countries has become more dependent on external factors, including global growth, global oil prices, and global financial volatility. After accounting for the effects global shocks, we find that several factors facilitate adjustment to shocks in middle income countries. Education attainment, share of manufacturing output in GDP, and exchange rate stability increase the level of economic growth, while exchange rate flexibility, education attainment, and lack of political polarization reduce the volatility of economic growth. Countries cope with shocks better in the short to medium term by using appropriate policy tools and having good long-term fundamentals.
Keywords: economic growth; volatility; middle-income countries; global financial crisis; adjustment to shocks
JEL Codes: E02; F43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP growth (O49) | global growth (F62) |
| GDP growth (O49) | global oil prices (Q31) |
| GDP growth (O49) | global financial volatility (F30) |
| education attainment, share of manufacturing output in GDP, exchange rate stability (E69) | economic growth (O49) |
| exchange rate flexibility, education attainment, lack of political polarization (F31) | volatility in economic growth (O49) |
| better policy tools, strong long-term fundamentals (E61) | cope better with shocks (E32) |