Flexibility of Adjustment to Shocks: Economic Growth and Volatility of Middle-Income Countries before and after the Global Financial Crisis of 2008

Joshua Aizenman, Yothin Jinjarak, Gemma Estrada () and Shu Tian ()
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Shu Tian: Asian Development Bank

No 526, ADB Economics Working Paper Series from Asian Development Bank

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. Gross domestic product 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. Educational attainment, share of manufacturing output in gross domestic product, 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: growth; institutions; middle income; shocks; volatility (search for similar items in EconPapers)
JEL-codes: C38 E02 F43 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-11-21
New Economics Papers: this item is included in nep-mac, nep-opm and nep-war
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Related works:
Journal Article: Flexibility of Adjustment to Shocks: Economic Growth and Volatility of Middle-Income Countries Before and After the Global Financial Crisis of 2008 (2018)
Working Paper: Flexibility of Adjustment to Shocks: Economic Growth and Volatility of Middle-Income Countries Before and After the Global Financial Crisis of 2008 (2017)
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