the rate of growth of M1/GDP ratio did not vary much between the different periods or between the countries in the three regions. In contrast, fiscal policy during these years was expansionary in Asia as the deficit increased, whereas fiscal policy was contractionary in the other two regions. Despite the different stance of fiscal policy, the growth rate of GDP declined the most in Asia. Furthermore, the inflation rate fell in LA and Africa but rose in Asia. In all three regions, the devaluation of the exchange rate slowed. However, the share of exports in GDP increased in all three regions.
During the years 2010–2015 after the immediate crisis years, both Asia and Africa adopted an expansionary monetary and fiscal policy. LA had the opposite combination of an expansionary monetary policy and a contractionary fiscal policy. The combination of expansionary monetary policy and contractionary fiscal policy should lead to lower interest rates in the economy. This should be expansionary leading to faster growth as well as higher inflation. This is borne out in the case of LA where both the growth rate of GDP and the rate of inflation increased. But unexpectedly, the exchange rate appreciated. Along with the higher inflation this implied a large real appreciation. Consequently, the share of exports in GDP fell.
The expansionary fiscal and monetary policy adopted by Asia and Africa should have resulted in higher incomes and an indeterminate effect on interest rates. In reality, nominal interest rates declined. These inflationary policies because of their supply effects reduced inflation. Also, the rate of growth of GDP increased.
If we try to examine the trends in GDP growth rate for the three regions under consideration — LA, Asia and Africa — we see that they show a more or less similar pattern (Table 2). The Latin American countries have shown the highest fluctuation over the years, with the maximum decline in the crisis period relative to Asia and Africa. The GDP growth rates of both Asia and Africa declined, but at a much lower rate. However, in the recent past (2014–2015), growth rates in Asia have been diverging from the other two as Asia exhibits a much faster rate of growth. The reason for this can be attributed to emerging market economies like India and China who have a high growth rate and have been reasonably successful in surviving the crisis.
Table 2. Average Annual Changes in Key Variables
Individual Country Analysis
We now discuss the behaviour of individual countries and try to analyse how their behaviour after the crisis is related to their behaviour before the crisis. We calculate the average pre-crisis and post-crisis values for the individual countries and see whether the means are significantly the same before and after the crisis (Table 3).
The countries present a mixed picture (Table 4). But by and large, the countries have a higher investment ratio. Only one country, Guatemala, has a significantly lower investment rate; all the other countries who have a significantly different mean have a higher mean. The only African country which has a significantly different export share has a higher share of exports in GDP and an improved CAB. Most of the other countries which show a significantly different export share after the crisis show an increase except for Guatemala and Pakistan. Only three countries have significantly different growth rates: Bolivia has a higher growth rate and Pakistan and South Africa have a lower one. It seems that these large countries have weathered the crisis without a significantly lower growth. Since the overall growth rates of developing countries have fallen, this suggests that the brunt of the adjustment burden has fallen on smaller countries. Also, there is a good relation between export performance and growth rate. Bolivia’s export share increased and its growth rate increased. The two countries in which the growth rate fell also saw a decrease in export share.
Table 3. Preand Post-crisis Behaviour of Indicators
Note: Change is with respect to pre-crisis figures. *indicates significance.
Post crisis only Indonesia has a significantly lower money supply; in the other countries where there was a significant change, the money supply is higher. The interest rate behaves accordingly. While the change in M1 is usually in the same direction as the change in reserves for Asian and African countries, this is not the same in Latin American countries, suggesting significant central bank intervention.
Table 4. Preand Post-crisis Performance
Note: *indicates significance.
Spearman’s Rank Correlation
The relationship between the variables is unknown and Spearman’s rank correlation (ρ) is calculated to analyse the relationship among the variables before and after the crisis. Only those ρ which are significant at 5% level are considered.
H0: ρ = 0 which means ρ is insignificant.
H1: ρ ≠ 0 which means ρ is significant.
We reject null if p-value is <0.05, which means ρ is significant.
The analysis shows that the countries with the highest average GDP growth rates before the crisis had the lowest average GDP growth rate in the post-crisis period. This can be attributed to the fact that countries which grew relatively faster during the boom period prior to the crisis had access to easy credit from the US. After the crisis, as there was a huge liquidity crunch and credit dried up, growth rates of these countries declined drastically.
Pre-crisis average export share is positively related to post-crisis average export share. This means that those countries, which had a higher share of exports in the pre-crisis period, had a higher export share in the post-crisis period. If we consider the region-wise ranks, we see those regions that had a higher export share pre-crisis had a lower export share post crisis. However, this is not reflected in ρ. Therefore, the regional decline was more for countries with a higher export share. This may be because demand for imports by other countries declined due to a decrease in world demand due to the crisis.
Countries with higher average CAB in the pre-crisis period had higher CAB in the post-crisis period. This can be attributed to the fact that countries usually had a higher CAB initially because of better export performance, and in general, they were able to maintain their export performance as noted above and so continued to have a better CA position. CAB declined regionally, but it declined more for those countries that had a lower balance initially.
Countries with a higher average foreign exchange in the pre-crisis period had a higher foreign exchange in the post-crisis period. The build-up in reserves was generally because of better export performance, and since this was maintained post crisis, the reserves of these countries did not decline much.
Countries with a higher GFCF in the pre-crisis period had a higher GFCF in the post-crisis period. This can be because post crisis, interest rates declined, and governments also undertook expansionary fiscal policies particularly increasing investment as part of the recovery package due to the crisis.
The ρ values calculated to check the relationship between the other variables were found to be insignificant.
