nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2008‒02‒02
two papers chosen by
Iulia Igescu
Global Insight, GmbH

  2. Assessing the Effect of Current Account and Currency Crises on Economic Growth By Aßmann, Christian

  1. By: Partha Sen (Department of Economics, Delhi School of Economics, Delhi, India)
    Abstract: Since the early 1990s the Indian economy has seen a considerable relaxation of controls, as a consequence of which it has witnessed unprecedented growth. This is especially remarkable in the external sector. In this paper I evaluate the progress made on the macroeconomic front and address the possibility of opening up the capital account of the balance of payments. I show that given the weakness in the financial sector and the government finances, it may be dangerous to speed up the process of opening up the capital account further.
    Keywords: Economic liberalization, financial repression, capital account convertibility
    JEL: E58 F21 F32 F43
    Date: 2007–08
  2. By: Aßmann, Christian
    Abstract: Several empirical studies are concerned with measuring the effect of currency and current account crises on economic growth. Using different empirical models this paper serves two aspects. It provides an explicit assessment of country specific factors influencing the costs of crises in terms of economic growth and controls via a treatment type model for possible sample selection governing the occurrence of crises in order to estimate the impact on economic growth correctly. The applied empirical models allow for rich intertemporal dependencies via serially correlated errors and capture latent country specific heterogeneity via random coe±cients. For accurate estimation of the treatment type model a simulated maximum likelihood approach employing efficient importance sampling is used. The results reveal significant costs in terms of economic growth for both crises. Costs for reversals are linked to country specific variables, while costs for currency crises are not. Furthermore, shocks explaining current account reversals and growth show strong significant positive correlation.
    Keywords: Currency crises, Current account reversals, Treatment Model, Discrete dependent variable, Efficient Importance Sampling, Panel Data
    JEL: C15 C23 C33 F32 O10
    Date: 2008

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