ECONOMIC GROWTH EFFECTS OF AN INTERNATIONAL CRISIS

Oscar Afonso and Rui Alves

The Singapore Economic Review (SER), 2015, vol. 60, issue 02, 1-16

Abstract: We develop a general equilibrium endogenous growth model where final goods are produced in either the exporter sector or the importer sector, in order to analyze the short, medium and long-run growth effects of an external demand shock induced by an international crisis, such as the current one. Depending on the policy response, such a shock might (or might not) severely affect competitiveness, wage inequality, the economic growth rate and the technological-knowledge bias. This bias controls the paths towards the new steady state. The model shows that countries with balanced public finances can accommodate the external shock and that the intervention should be prompt, as the delay is costly. Results appear to be supported by empirical evidence.

Keywords: External demand shock; economic growth; public accounts; competitiveness; wages; C63; J31; O31 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S0217590815500125

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