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

Seok-Kyun Hur, Shikha Jha, Donghyun Park and Pilipinas Quising
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Seok-Kyun Hur: Asian Development Bank, http://www.adb.org/documents/working-papers/2010/economics-wp215.pdf
Shikha Jha: Asian Development Bank
Donghyun Park: Asian Development Bank
Pilipinas Quising: Asian Development Bank

No 215, ADB Economics Working Paper Series from Asian Development Bank

Abstract: 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.

Keywords: Fiscal stimulus; fiscal policy; countercyclical stabilization; global crisis; Asia (search for similar items in EconPapers)
JEL-codes: E32 E62 E63 (search for similar items in EconPapers)
Date: 2010-08
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