The effects of currency crises on the long-run growth

Abstract

We attempt to analyse the effects of the currency crises on the long-run growth by using a cross-sectional country dataset. After controlling for the post-crisis period, we find that the effects of the currency crises on the long-run growth are strictly negative and significant. We also find that the negative effects of the currency crises on the long-run growth increase as the number of the currency crises increases.

Notes

¹ The total secondary school enrollment refers to the percentage of the population for whom the secondary school education is the highest attained, while the full secondary school enrollment refers to those who had the completion of the secondary school education as the highest attained. For more details, see Barro and Lee (2000).

² The list of countries is as follows: Argentina, Australia, Austria, Bangladesh, Barbados, Belgium, Benin, Bolivia, Chile, China, Colombia, Congo (Republic of), Denmark, Dominica, Dominican Republic, Egypt, El Salvador, France, Gambia (The), Ghana, Greece, Guatemala, Honduras, Hong Kong, Iran, Ireland, Japan, Lesotho, Mauritius, Netherlands, Niger, Pakistan, Panama, Peru, Poland, Romania, Senegal, Sri Lanka, St. Kitts & Nevis, St. Lucia, St. Vincent & Grenadines, Switzerland, Syria, Togo, Uganda, United States, Uruguay.

³ For the rest of this article, we will refer 21-years growth rates as the long-run growth rates.

⁴ Note that one could also include only one dummy variable for the countries that have experienced currency crisis between 1980 and 1990. Then, although the intuition of the results would be the same, the only thing that would change is the presentation of the estimated coefficients.

⁵ In particular, (1 + 0.0162)²¹ = (1 + 0.40).

⁶ It is worth noting that we also included the (log) values of initial inflation, openness and initial shares of consumption, investment and government spending in the real GDP into our analysis. None of them were significant besides our dummy variables because of a possible multicollinearity problem. The results of the multicollinearity tests and of the extended regression analysis have been omitted to save space, but they are available upon request.