Donghyun Park - Did Fiscal Stimulus Lift Developing Asia Out of the Global Crisis? A Preliminary Empirical Investigation

Donghyun Park will address in the seminar the question: “Did fiscal stimulus lift developing Asia out of the global crisis? Developing Asia has weathered the global economic crisis well and is experiencing a rapid, robust V-shaped recovery. According to conventional wisdom, the fiscal stimulus packages put in place by the region's governments played a key role in the region's superior post-crisis performance. The central objective of Mr. Park's paper is to empirically test this conventional wisdom. To do so, Mr. Park first examines the state of fiscal health in major developing Asian countries, and then explores the size and structure of the fiscal stimulus packages that they have actually implemented. The empirical analysis centers on assessing the impact of fiscal stimulus on developing Asia's GDP growth during the crisis. His main finding is that fiscal stimulus has had a significant positive impact. This suggests that fiscal policy has helped the region cushion the adverse impact of the collapse in global trade. The immediate implication for regional policymakers is that proactive use of countercyclical fiscal policy can limit the slowdown of economic activity arising from severe external shocks. The broader, more fundamental policy implication is that it is in the region's best self-interest to adhere to its long-standing commitment to fiscal discipline so that it has fiscal space to cope with tail risks.

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