## Growth Dynamics: The Myth of Economic Recovery

_IMF Working Papers, July 1, 2005_

## Source details

**Canonical URL:** [Growth Dynamics: The Myth of Economic Recovery](https://www.imf.org/en/publications/wp/issues/2016/12/31/growth-dynamics-the-myth-of-economic-recovery-18392)

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## Bibliographic details
- Authors: Sweta Chaman Saxena, Valerie Cerra
- Published: July 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861662.001

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### Summary findings
- Using panel data for a large number of countries, the authors find that economic contractions are not followed by offsetting fast recoveries.
- "Trend output lost is not regained, on average."
- Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth.
- The authors find absolute convergence in expansions.
- "The output costs of political and financial crises are permanent on average and long-term growth is negatively linked to volatility."
- These results imply that panel data studies can help identify the sources of growth.

### Empirical implications and interpretation
- Negative shocks (wars, crises, other shocks) produce persistent, non-recovered losses in output rather than temporary dips followed by rapid catch-up.
- Expansions exhibit absolute convergence, indicating recoveries in expansion episodes behave differently from contractions.
- Volatility is negatively linked to long-term growth, reinforcing the importance of stability for sustained growth.

### Implications for economic modeling and research
- Economic models should be capable of explaining growth and fluctuations within the same framework.
- Panel data approaches are useful for distinguishing sources of growth and the asymmetric effects of contractions versus expansions.

### Key statements (verbatim)
- "Using panel data for a large number of countries, we find that economic contractions are not followed by offsetting fast recoveries."
- "Trend output lost is not regained, on average."
- "Wars, crises, and other negative shocks lead to absolute divergence and lower long-run growth, whereas we find absolute convergence in expansions."
- "The output costs of political and financial crises are permanent on average and long-term growth is negatively linked to volatility."

*Sweta Chaman Saxena and Valerie Cerra, July 1, 2005 — Growth Dynamics: The Myth of Economic Recovery (IMF Working Paper).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/growth-dynamics-the-myth-of-economic-recovery-18392_