What explains output recoveries in developing and emerging market economies after the global financial crisis?
This paper presents a systematic assessment of the macroeconomic factors associated with differences in GDP dynamics in emerging markets in the aftermath of the global financial crisis. We implement a Bayesian Model Averaging approach to explore the drivers of economic resilience – measured by the output recoveries for a group of 40 emerging economies after 2008, which allows us to account for the uncertainty in the model selection of the relevant variables. Out of a large group of variables used in the literature on balance of payments crises and early warning indicators, we find that a reduced set of variables is systematically associated with output dynamics after the crisis. Countries with overvalued currencies, current account deficits and larger external liabilities before the global financial crisis exhibit systematically weaker output recoveries afterwards. These findings are robust to different definitions of output recovery, the distribution of priors and exclusion of potential outliers. There is also some evidence, but less systematic, that de facto financial openness, links to European banks, and trade openness had a negative impact on output recoveries.
Cite this publication
Belongs to collection
Latin American Economic Outlook 2022. Towards a Green and Just Transition
Latin American and Caribbean (LAC) countries are at a critical juncture. Just as the region was looking forward to a rebound in growth and a more ...
Annual Report 2014
2014 was a year of change for Latin America’s economic conditions, in an environment of moderate global growth and a slowdown in emerging economies. ...
Determinants of Financial Well-Being Evidence from Latin America
This paper provides a baseline measurement of financial well-being in Latin America and studies the factors associated with this indicator. The highest ...