Growth Accelerations and Reversals in Emerging Market and Developing Economies: External Conditions and Domestic Amplifi
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Growth Accelerations and Reversals in Emerging Market and Developing Economies: External Conditions and Domestic Amplifiers Bertrand Gruss 1
& Malhar
Nabar 1 & Marcos Poplawski-Ribeiro 1
# Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract We investigate how country-specific external demand, external financial conditions, and terms of trade affect medium-term growth in emerging market and developing economies and the occurrence of growth accelerations and reversals. We find that the importance of country-specific external conditions for mediumterm growth has increased over time, with external financial conditions accounting for one-third of the increase in average income per capita growth between 1995 and 2004 and 2005–14. Stronger external demand and financial conditions significantly increase the probability of growth accelerations, while a strengthening of any of the three conditions significantly decreases the probability of reversals. Certain domestic policies and structural attributes, including exchange rate flexibility, trade integration, and strong institutional frameworks, can significantly amplify or mitigate the effect that shifts in those external conditions have on growth patterns in emerging market and developing economies. JEL Classification Numbers O47 . F43 . F63 Keywords Economic growth . Emerging markets . Developing economies . External
conditions
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s11079-01909569-z) contains supplementary material, which is available to authorized users.
* Bertrand Gruss [email protected] Malhar Nabar [email protected] Marcos Poplawski-Ribeiro [email protected]
1
International Monetary Fund, Washington, DC, USA
Gruss B. et al.
1 Introduction The contribution of emerging market and developing economies (EMDEs) to global growth of output and consumption has increased rapidly in recent decades.1 But despite the impressive gains for the group—which now accounts for close to 70% of global growth output (Fig. 1)—per capita income levels of individual countries are still relatively low vis-à-vis those of advanced economies (AEs). Indeed, in 90% of EMDEs income per capita is less than half what it is in the United States (Fig. 2). These income differences point to room for further catch-up growth and income convergence. The historical record suggests, however, that steady, sustained catch-up growth spurred by income gaps relative to AEs is not automatic. Growth across EMDEs instead exhibits episodes of accelerations and reversals. Furthermore, the uneven record and variation over time in the speed of convergence point to a possible role for external conditions and domestic amplifiers in influencing the growth process of these economies. The influence of external conditions may be particularly relevant in current times considering the shifts occurring in the global economy (slower potential growth across most AEs, higher tariff barriers, a more subdued outlook for commodity prices than pri
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