Comparative Analysis: Correlations
Spearman’s rank correlation gives a weaker result than correlation. Thus, this chapter analyses these results further using correlations. Correlations for the same variable (averages) in the pre-crisis and the post-crisis periods for all the countries are calculated. They are found to be significant, re-enforcing the results of the Spearman’s rank correlations.
The correlation between two variables is examined before and after the crisis, to check whether they are significant. Then a t-test is performed at 95% confidence inter val. This is to see if the correlations are statistically significant and whether the relationship among the variables in the precrisis period holds even in the post-crisis period. The results are discussed below.
There is a positive correlation between average GDP growth rate and average GFCF in the pre-crisis and post-crisis periods. However, the correlations are not statistically equal. So, the same relation is not maintained after the crisis. Average export share has a positive correlation with CAB, foreign exchange and total reserves in both the pre-crisis and post-crisis periods. This reinforces the conclusion in the previous section. However, the pre-crisis period correlation is not statistically equal to the correlation in the post-crisis period.
There is significant positive correlation between the average foreign exchange and average total reserves in the pre-crisis and post-crisis periods. The average interest rate and average money stock have a significant negative correlation in the pre-crisis and post-crisis periods. This relationship is maintained in the post-crisis period as well — as interest rate increases, people invest more (or save more, expecting future returns) and thus money stock decreases. This did not change in spite of the crisis.
There is a positive correlation between pre-crisis average foreign exchange, pre-crisis average GFCF and average total reserves with post-crisis average GDP growth rate. While the aforementioned correlations are backed by economic logic, there are other correlations that seem spurious. Not all results are discussed here.
Conclusions
The broad trends in the countries of the three regions are similar. Growth rate of GDP per capita fell in the years 2008–2009 immediately after the financial crisis but recovered subsequently. Furthermore, the growth rate for the period 2010–2015 was higher in Africa and Asia than in the period 1990–2007, while it was lower in LA. The African and Latin American countries in our sample had similar growth rates before the crisis, but the African countries fared better after the crisis. This suggests that the crisis had a more lasting effect on growth in the Latin American countries.
As far as GFCF is concerned, it rose in 2008–2009 immediately after the crisis, despite the slowdown in growth. Subsequently, in the period 2010–2015, it decreased for LA and SSA while it continued to increase in Asia. However, the share of GFCF in GDP was higher post crisis as compared to the period before the crisis for all the three regions. The investment in Asian countries was financed by higher savings rates, and they could maintain their investment rates while maintaining a sustainable CAB. The African countries had CA deficits higher than reported historically and further adjustment might be needed if higher growth rates are to be sustained. Latin American countries have seen the temporary increase in savings rates during 2008–2009 being reversed. Thus, investment rates have fallen and CAB has deteriorated. They still face major problems of adjustment.
There was an increase in the share of XG&S in GDP in all three regions in the years 2008–2009, the immediate aftermath of the crisis. The increase was particularly large for LA. Subsequently, in the period 2011–2015, the share fell in LA and Asia but continued to increase in SSA.
The CAB improved for countries in LA and Asia during the period 2008–2009 as compared to the pre-crisis period as there was a surge in exports. The increase in GFCF coupled with the improvement in the CAB implies a massive increase in savings. In the case of Africa also, there was an increase in the share of exports in GDP. But the increase in the share of GFCF in GDP, from 18.4% to 23.5%, was really large and much larger than the increase in Asia and LA. Savings could not increase correspondingly. Thus, despite an increase in the share of exports in GDP, the CAB deteriorated substantially.3 In the recovery period, 2010–2015, the CAB deteriorated in LA and Asia.
The high savings rates achieved during the crisis years of 2008–2009 could not be sustained, and fell in all three regions. The fall in the savings rate in LA was much larger than in the other two regions, so that the GFCF ratio fell and the CAB deteriorated. Africa’s savings rate in 2010–2015 was still substantially above that in 1990–2007. In the case of Asia, the decline in the savings rate was very small so that the GFCF increased with only some worsening in the CAB.
The performance of the individual countries presents a mixed picture. Only Bolivia, Pakistan and South Africa have significantly different growth rates, the former higher and the latter two lower. Larger countries have not witnessed a large fall in growth rates, the burden of adjustment has fallen mostly on small countries. Export performance seems to be related to growth. Growth increased in Bolivia and export share increased, and in Pakistan and South Africa growth decreased and export share fell. The countries also had a higher money growth and a lower interest rate, which helped to maintain the investment rate.
Our analysis using Pearson’s rank correlation confirms this, as does the correlation analysis. Countries with good export performance grew faster before the crisis and their better export performance enabled them to build up reserves. They were able to maintain higher rates of investment and growth because of continued good export performance and their accumulated foreign exchange reserves.
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