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

57 Pages Posted: 9 Oct 2010

See all articles by Seok-Kyun Hur

Seok-Kyun Hur

Korea Development Institute (KDI)

Shikha Jha

Asian Development Bank

Donghyun Park

Asian Development Bank - Economic Research

Pilipinas Quising

Asian Development Bank - Economic Research

Date Written: August 1, 2010

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: Asia, fiscal stimulus, fiscal policy, countercyclical stabilization, global crisis

JEL Classification: E62, E63, E32

Suggested Citation

Hur, Seok-Kyun and Jha, Shikha and Park, Donghyun and Quising, Pilipinas, Did Fiscal Stimulus Lift Developing Asia Out of the Global Crisis? A Preliminary Empirical Investigation (August 1, 2010). Asian Development Bank Economics Working Paper Series No. 215. Available at SSRN: https://ssrn.com/abstract=1688703 or http://dx.doi.org/10.2139/ssrn.1688703

Seok-Kyun Hur (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Shikha Jha

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Donghyun Park

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Pilipinas Quising

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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