Do Weak Institutions Prolong Crises? On the Identification, Characteristics, and Duration of Declines During Economic Slumps
This paper studies periods of prolonged contractions in output per capita in a sample of 145 countries from 1950 to 2014. Economic slumps are defined as abrupt interruptions of a period of growth by several regime switches. Slumps start with a shar...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/514691580305796466/Do-Weak-Institutions-Prolong-Crises-On-the-Identification-Characteristics-and-Duration-of-Declines-During-Economic-Slumps http://hdl.handle.net/10986/33263 |
| Summary: | This paper studies periods of prolonged
contractions in output per capita in a sample of 145
countries from 1950 to 2014. Economic slumps are defined as
abrupt interruptions of a period of growth by several regime
switches. Slumps start with a sharp contraction along with a
trend break, which is followed by another switch when growth
stabilizes again. The paper then analyzes the correlates of
these slumps, focusing on the length and depth of the
contraction, from the beginning of the slump to its trough.
The results establish three new stylized facts: (i) weak
political institutions predate crises whereas political
reforms tend to follow them, (ii) the length and depth of
economic declines are robustly correlated with executive
constraints and ethnic heterogeneity, and (iii) there is a
robust interaction between these two variables, suggesting
that institutions constraining leaders are important for
stabilizing growth. This is particularly relevant for
Sub-Saharan Africa, where politics are often ethnic and
decision makers are comparatively unconstrained. |
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