Online from: 1988
|Title:||Growth dynamics: the myth of economic recovery|
|Author(s):||Cerra V, Saxena S C|
|Journal:||American Economic Review, Mar 2008, Volume: 98 Issue: 1 pp.439-457 (19 pages)|
|Keywords:||Developing Countries, Economic Growth, Financial Crisis, War|
|Article type:||Research paper|
|Reference:||37AK129 (Permanent URL)|
Design/methodology/approach - Samples GDP and income for four income groups for each of 190 countries from 1960 to 2001. Creates an exchange market pressure index (EMPI) for each country to define a financial crisis and analyses data around the first year of systemic banking crises. Adds data on civil wars and on quality of government. Matches against growth data for 35 countries from 1989. Calculates impulse response functions for each global region, for transition countries, and for each income group. Forecasts the effects of crises.
Findings - Finds that the impact of a banking crisis is almost twice as large as for a currency crisis and is as persistent, while the impact of a civil war is less persistent, but lasts up to ten years. Notes that weaker governance leads to marked output losses in Africa, Latin America and transition countries, but not in Asia. Notes that civil war plus weak controls together cut output by 16% (20% for the lowest income countries).
Research limitations/implications - Implies research is needed to confirm a link between financial crises and optimism; and suggests study of why the permanent effects of crises are so strong.
Originality/value - Presents new treatment of growth data to show the persistent damage caused by crises.