Working Paper #2012-040
Explaining the dynamics of stagnation: An empirical examination of the North, Wallis and Weingast approach
This paper analyzes periods of economic stagnation in a panel of
countries. We test if stagnation episodes are predicted by institutional
factors and external/internal shocks, as is implied by recent
theoretical contributions, and compare the impacts of these variables
with those of traditional macroeconomic variables. We examine the
determinants of stagnation episodes using multivariate dynamic linear
models, fixed-effects logit models, and dynamic random effects probit
models. In addition, we analyze whether the included variables have
different impacts on the onset of a stagnation episode than on its
continuation. We find that inflation, negative regime changes, real
exchange rate undervaluation, financial openness, and trade openness
explain the incidence of stagnation spells. Only in the case of trade
openness, there is robust evidence of a differential impact; it reduces
the probability of falling into a stagnation spell, but has a weaker
effect within a spell. All models account for unobserved heterogeneity
and exhibit a moderate degree of positive state-dependence.
- Keywords
-
- growth episodes
- stagnation
- institutions
- dynamic panel data
- JEL codes
-
- O11
- O43
- C25
Cite this as
APA 7th ed.Bluhm, R., de Crombrugghe, D., & Szirmai, A. (2012). Explaining the dynamics of stagnation: An empirical examination of the North, Wallis and Weingast approach (UNU-MERIT Working Paper No. 2012-040). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=4717