Growth Collapses

Hausmann, R., Rodríguez, F. & Wagner, R.

October 2006

We study episodes where economic growth decelerates to negative rates. While the majority of these episodes are of short duration, a substantial fraction last for a longer period of time than can be explained as the result of business-cycle dynamics. The duration, depth and associated output loss of these episodes differs dramatically across regions. We investigate the factors associated with the entry of countries into these episodes as well as their duration. We find that while countries fall into crises for multiple reasons, including wars, export collapses, sudden stops and political transitions, most of these variables do not help predict the duration of crises episodes. In contrast, we find that a measure of the density of a country's export product space is significantly associated with lower crisis duration. We also find that unconditional and conditional hazard rates are decreasing in time, a fact that is consistent with either strong shocks to fundamentals or with models of poverty traps.