Globalization and the New Normal
IMF Working Papers, April 6, 2018
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Bibliographic details
- Authors: Alina Carare, Bertrand Candelon, Jean-Baptiste Hasse, Jing Lu
- Published: April 6, 2018
- Series: IMF Working Papers
Summary
- This study expands the empirical specification of Cerra and Saxena (2008), and allows short-term output growth regimes to be determined by globalization.
- Relying on a non-linear dynamic panel representation, it reconciles the earlier results in the literature regarding the two opposite narratives of the effects of globalization on output growth.
- Countries experience higher growth, on average, the more open and integrated they are into the world.
- However, once they reach a certain globalization threshold (endogenously estimated), countries may also experience a new normal, persistently lower short-term output growth following a financial crisis.
- The benefits, as well as vulnerabilities, accrue earlier in the globalization process for low- and middle-income countries.
- To solely reap the globalization benefits on growth, sound policies should be in place to mitigate the negative effects stemming from increased vulnerabilities brought by globalization.
Key findings
- Higher openness and integration into the world are associated with higher average growth.
- An endogenously estimated globalization threshold exists such that, beyond it, countries may face a "new normal" of persistently lower short-term output growth after a financial crisis.
- Low- and middle-income countries reach both the benefits and the vulnerabilities of globalization earlier in the globalization process.
Methodology
- Empirical approach: expands Cerra and Saxena (2008) empirical specification.
- Model: non-linear dynamic panel representation.
- Regime determination: short-term output growth regimes are allowed to be determined by globalization (with an endogenously estimated threshold).
Policy recommendations
- Implement sound policies to mitigate negative effects and vulnerabilities that arise from increased globalization if the objective is to reap globalization benefits on growth.
Subject and keywords
- Subject: Banking crises, Financial crises, Financial markets, Globalization, Production, Production growth, Stock markets
- Keywords: Banking crises, banking crisis, Financial crises, Global, Globalization, globalization threshold, high-globalization regime, Index value, KOF globalization Index, New Normal, Output growth, Production growth, Stock markets, trade globalization, WP
Content in this bundle
- Globalization and the New Normal, WP/18/75, April 2018