The International Crisis and Latin America: Growth Effects and Development Strategies

Latin America has been strongly affected by the international crisis and recession since late 2008 and has raised concerns in developing economies about their macroeconomic policy frameworks and their development strategies.

Among the questions raised by the crisis are: which policies can protect them best from world crises and shocks?, what role does domestic demand play in shielding them from crises?, and to which extent should they rely on a strategy of close trade and financial integration into a world economy punctuated by shocks and crises?

This paper aims at addressing the questions by first; assessing empirically the sensitivity of growth in the region’s seven major economies during 1990-2009 to large number of structural and cyclical factors, based on high-frequency panel-data estimations. Second, by using the latter results to decompose the amplitude of GDP reductions in both recessions according to the individual and combined contribution of the different growth factors. Third, to derive the main implications of the results for the choice of macroeconomic regimes and development strategies.

CASE Network Study and Analyses No. 429 "The International Crisis and Latin America: Growth Effects and Development Strategies" by Vittorio Corbo and Klaus Schmidt-Hebbel