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Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and the Global Financial Crises

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Latin American performance during the global financial crisis was unprecedented. Many developing and emerging countries successfully weathered the worst crisis since the Great Depression. Was it good luck? Was it good policies? This paper compares growth during the Asian and global financial crises. It finds that a looser monetary policy played an important role in mitigating crisis. It also finds that higher private credit, more financial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Better macroeconomic management was key to good economic performance, which is confirmed by our analysis of Latin American countries. Finally, there is also evidence for the sample of 31 emerging markets that high terms of trade had a positive impact on resilience.

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  1. We do not weight by size in order to give an aggregate view that does not result in an excessive influence of the largest countries in the region. Brazil and Mexico represent about three quarters of the output of the five countries; hence, the evolution of the weighted average (by size) would be basically the evolution of these two countries. In addition, by limiting the number of countries we also avoid giving excessive weight to small countries. For each crisis the year “0” is the year with the first decline in output, that is, 1982 for the debt crisis, 1999 for the Asian crisis, and 2009 for the global financial crisis.

  2. For further details on monetary policy regimes in Latin America and the Caribbean, see IDB (2012, chapter 6).

  3. Including Argentina and Venezuela would deteriorate average performance in the debt and Asian crises, while performance during the recent crisis would be similar until 2012.

  4. For further discussions on the Asian crisis and the policy responses, see Fischer (2001).

  5. Some work has looked at the role of external and macroeconomic factors on economic growth instead of crises. Rebucci (2009) finds that Latin America was more vulnerable to external shocks due to weak macroeconomic policies in 1965–92. De Gregorio and Guidotti (1995), for the period 1960–85, show that credit played a negative role in economic growth in Latin America due to weaknesses in the financial system that led to crisis in the early 1980s.

  6. Some other work has tried to look at the fall and recovery from the crisis, but a lack of data has led to the use of forecasted growth for 2010 (for example, Berkmen and others, 2012, and Didier, Constantino, and Schmukler, 2012), which of course is a partial measure, especially given the significant changes in output forecast in recent years. Additionally, 2010 was just the beginning of the recovery.

  7. The definition of the variable, the source, and descriptive statistics are shown in the Appendix.

  8. The classification of countries is in,,contentMDK:20421402~menuPK:64133156~pagePK:64133150~piPK:64133175~theSitePK:239419,00.html.

  9. The list of countries used in the estimation is shown in the Appendix.

  10. For univariate regressions we also include dummy variables by region, but given that we show the parameter for each covariate in a single column, they are not reported. The same applies for the R2 and number of observations.

  11. In a previous version of this paper we estimate these regressions for a sample including advanced economies. We found that exchange rate flexibility significantly helped to reduce the effects of the latter crisis. These results, however, is mostly driven by countries in the euro zone. We have excluded this analysis since advanced economies were not as affected by the Asian crisis.

  12. To deal with endogeneity, we could follow Corsetti, Meir, and Muller (2012) using deviations from policy rules for looking at the impact of discretionary changes in fiscal and monetary policy, but data are not available for the large sample of developing and emerging countries in our analysis. This procedure is also debatable in terms of the specification of the fiscal policy rule.

  13. Owing to space considerations, we discuss only the main findings from these additional estimations, but a complete Appendix with the corresponding tables is available in the working paper version of this paper, (Alvarez and De Gregorio, 2014).

  14. Unfortunately, direct measures of banking regulation and supervision as reported by Barth, Gerard, and Levine (2004) are not available for the period before the Asian crisis.

  15. For further discussions of policies in Latin America during the global financial crisis, see De Gregorio (2014a).

  16. In the case of Chile, post-Asian crisis evidence shows that already in the late 1990s, Chilean corporations, and of course banks, had very limited exchange rate exposure. Hence a sharp depreciation would not have entailed financial problems (Herrera and Valdés, 2005).

  17. See, for EMEs, Mihaljek and Klau (2008). For the case of Latin America Ghosh (2013) and De la Torre, Levy Yeyati, and Pienknagura (2013) report significant declines in pass-through.

  18. Vegh and Vuletin (2013) have shown that indeed “average” Latin American countries have graduated in terms of fiscal and monetary policy, since they were no longer procyclical during the recent crisis.

  19. The actual range of panel (a) goes from 0 to 16 percent, while the scale for panel (b) goes from 0 to 50 percent. Therefore in terms of percentage points, fluctuations were much sharper and volatile during the Asian crisis. Comparisons on a country-by-country basis for a number of relevant variables are available in the Appendix of the working paper version (Alvarez and De Gregorio, 2014).

  20. For more discussion on this measures see Jara, Moreno, and Tover (2009).

  21. See also Corbo and Schmidt-Hebbel (2013) who claim, “the 1998–1999 recession was largely homemade, while the 2008–2009 recession was significantly caused by the global financial crisis and the world recession.”

  22. Peru is the only country for which we do not have complete data for government expenditure.

  23. In Mexico government revenues depend strongly on oil revenues. Therefore, despite the country did not enjoy terms-of-trade gains, public finances received a boost.

  24. For discussion of the evidence as well as prudential policies, see Tovar, Garcia-Escribano, and Vera Martin (2012) and De Gregorio (2014a, chapter 4).


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Additional information

Prepared for the Fourteenth Jacques Polak Annual Research Conference of the International Monetary Fund, honoring Stanley Fischer, November 7–8, 2013, Washington, DC.

*Roberto Alvarez is professor and chair at the Department of Economics at the University of Chile. José De Gregorio is professor at the Economics Department of the Universidad de Chile and nonresident senior fellow of the Peterson Institute for International Economics. He was previously governor of the Central Bank of Chile. The authors are grateful to Ilan Goldfajn, two anonymous referees, and the editors for valuable comments; to Pablo Gutierrez, Andrés Leslie, and, especially, Damian Vergara for excellent research assistance; and Carlos Vegh for sharing his data on procyclicality of fiscal policy.



See Tables A1 and A2

Table A1 Data Source and Descriptive Statistics
Table A2 Country List

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Alvarez, R., De Gregorio, J. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and the Global Financial Crises. IMF Econ Rev 62, 494–525 (2014).

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