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

31 Pages Posted: 7 Jun 2018

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics; National Bureau of Economic Research (NBER)

Yothin Jinjarak

Victoria University of Wellington - School of Economics & Finance

Gemma Bolotaulo Estrada

Asian Development Bank - Economic Research

Grace Tian

Asian Development Bank

Multiple version iconThere are 2 versions of this paper

Date Written: November 2017

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

JEL Classification: C38, E02, F43

Suggested Citation

Aizenman, Joshua and Jinjarak, Yothin and Estrada, Gemma Bolotaulo and Tian, Shu, Flexibility of Adjustment to Shocks: Economic Growth and Volatility of Middle-Income Countries Before and after the Global Financial Crisis of 2008 (November 2017). ADBI Working Paper 526. Available at SSRN: https://ssrn.com/abstract=3187910 or http://dx.doi.org/10.2139/ssrn.3187910

Joshua Aizenman

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yothin Jinjarak

Victoria University of Wellington - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

Gemma Bolotaulo Estrada

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Shu Tian (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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