Did Fiscal Stimulus Lift Developing Asia out of the Global Crisis? A Preliminary Empirical Investigation

Publication | August 2010

This paper examines the effectiveness of developing Asia’s fiscal stimulus in limiting the negative impact of the global financial crisis on the region’s output.

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 postcrisis performance. The central objective of this paper is to empirically test this conventional wisdom. To do so, it first examines the state of the precrisis fiscal health in major developing Asian countries, and then explores the size and structure of the fiscal stimulus packages that were implemented. Empirical analysis centers on assessing the impact of fiscal stimulus on developing Asia's gross domestic product growth during the crisis. The main finding is that the 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.


  • Abstract
  • Introduction
  • State of Fiscal Health in Developing Asian Countries
  • Size and Structure of Developing Asia's Fiscal Stimulus Packages
  • Empirical Framework
  • Empirical Results
  • Appendixes
  • References

Additional Details

  • Economics
  • Finance sector development
  • Poverty
  • WPS102506
  • 1655-5252 (Print)

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