Are Crises Good for Long-Term Growth? The Role of Political Institutions

This paper provides empirical evidence for the importance of institutions in determining the outcome of crises on long-term growth. Once unobserved country-specific effects and other sources of endogeneity are accounted for, political institutions affect growth through their interaction with crises. The results suggest that only countries with strong democracies, high levels of political competition and external constraints on government can potentially benefit from crises and use them as opportunities to enhance long-term output per capita and productivity growth.

The Aftermath of Natural Disasters: Beyond Destruction

Naturkatastrophe; Makroökonomischer Einfluss; Soziale Kosten; Wirtschaftliche Anpassung; Welt

The Economics of Natural Disasters - A Survey

Catastrophes caused by natural disasters are by no means new, yet our evolving understanding regarding their relevance to economic development and growth is still at its infancy. In order to facilitate further necessary research on this topic, we summarize the state of the economic literature that examines the aggregate impact of disasters. We review the main disaster data sources available, discuss the determinants of the direct effects of disasters, and distinguish between the short- and long-run indirect effects. After reviewing these literatures, we examine some of the relevant policy questions, and follow up with projections about the future likelihood of disasters, while paying particular attention to the projected climate change. We end by identifying several significant gaps in this literature.natural disasters, climate change, growth

La Sostenibilidad de Deuda frente a Riesgo de Catastrofes Naturales

Los desastres naturales son una importante fuente de vulnerabilidad en la región del Caribe. A pesar de ser una de las regiones del mundo con más altas probabilidades de desastres naturales, el Caribe tiene los niveles más bajos de cobertura de seguro. Este articulo examina la vulnerabilidad de las finanzas publicas de Belice debido a la alta ocurrencia de huracanes. El artículo estudia el potencial de instrumentos de aseguración que podrían reducir la vulnerabilidad a estos desastres naturales. Este estudio encuentra que el seguro de Riesgos Catastróficos mejora la sostenibilidad de la deuda del gobierno de Belice. La metodología aplicada por el estudio hace posible estimar el nivel apropiado de cobertura de seguro apropiado. Para el caso de Belice, es como máximo, US$120 millones por año. Organizaciones internacionales pueden jugar un papel importante en asistir a los países a sobrellevar las distorsiones de los mercados de seguros, como también en ayudar a disminuir la resistencia política interna contra la aplicación de esta póliza.

Quid pro Quo: National Institutions and Sudden Stops in International Capital Movements

The paper explores the incidence of sudden stops in capital flows on the incentives for building national institutions that secure property rights in a world where sovereign defaults are possible equilibrium outcomes. Also thepaper builds upon the benchmark model of sovereign default and direct creditor sanctions by Obstfeld and Rogoff (1996). In their model it is in the debtor country’s interest to “tie its hands” and secure the property rights of lenders as much as possible because this enhances the credibility of the country’s romise to repay and prevents default altogether. It incorporate two key features of today’s international financial markets that are absent from the benchmark model: the possibility that lenders can trigger sudden stops in capital movements, and debt contracts in which lenders transfer resources to the country at the start of the period, which have to be repaid later. The papershows that under these conditions the advice “build institutions to secure repayment at all costs” may be very bad advice indeed.

Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality

Openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflows, crashes in currencies, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. Using the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade, this paper finds that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade.

Financial Development and TFP Growth: Cross-Country and Industry-Level Evidence

This paper estimates the impact of financial development on industry-level total factor productivity (TFP) growth using a largely unexploited panel of 77 countries with data for 26 manufacturing industries for the years 1963 to 2003. A significant relationship is found between financial development and industry-level TFP growth when controlling for country-time and industry-time fixed effects. The results are both statistically and economically significant. TFP growth can accelerate up to 0.6 percent per year, depending on the external finance requirement of industries, following a one standard deviation increase in financial development. The results are robust to different samples and specifications.Financial development, TFP growth, Volatility

Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causality

Openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflow, currency crashes, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. We use the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade. We find that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade.