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

40 Pages Posted: 5 Jun 2017 Last revised: 13 Feb 2023

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics

Yothin Jinjarak

Victoria University of Wellington - Te Herenga Waka - 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: June 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. GDP 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. Education attainment, share of manufacturing output in GDP, 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.

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 (June 2017). NBER Working Paper No. w23467, Available at SSRN: https://ssrn.com/abstract=2980555

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

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

Yothin Jinjarak

Victoria University of Wellington - Te Herenga Waka - 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

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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