Economic Scarring: Channels and Policy Implications
IMF Working Papers, December 9, 2022
Source details
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- Economic Scarring: Channels and Policy Implications
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Bibliographic details
- Authors: Nujin Suphaphiphat, Yu Shi
- Published: December 9, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400227257.001
Summary
- Documents the existence of medium-to-long term output losses following large crises using panel data that cover 192 countries from 1970 to 2015.
- Shows that the magnitudes of economic scarring depend on:
- the nature of the shock,
- economic activity, and
- pre-crisis conditions.
- Provides a review of potential channels that can lead to scarring.
- Presents novel empirical evidence on the significance of supply-side channels using cross-country sectoral-level data.
- Discusses policy implications based on the empirical findings.
Data, scope, and methodology
- Panel data covering 192 countries from 1970 to 2015.
- Sectoral-level cross-country data used to identify supply-side channels.
- Working Paper length: 21 pages.
Key findings and empirical results
- Medium-to-long term output losses are documented following large crises in the sample.
- Magnitude of scarring varies by:
- nature of the shock,
- type of economic activity affected,
- pre-crisis economic conditions.
- Supply-side channels are empirically significant when examined with cross-country sectoral-level data.
Channels of scarring reviewed
- Multiple potential channels are reviewed (supply-side emphasis highlighted in the paper).
- Supply-side channels receive novel empirical investigation at the sectoral level.
Policy implications
- Policy discussion is grounded in the empirical findings on scarring magnitudes and channels.
- Implications focus on addressing the specific channels (including supply-side bottlenecks) and accounting for differences by shock type, economic activity, and pre-crisis conditions.
Content in this bundle
- Working Paper