International Monetary Fund World Economic Outlook October 2012

1. International Monetary Fund World Economic Outlook October 2012 Resilience in Emerging Market andDeveloping Economies: Will It Last? • Abdul Abiad, John Bluedorn, Jaime Guajardo, and Petia Topalova • with support from Angela Espiritu and Katherine Pan

2. EMDEs have done well over the past decade,and through the global crisis Source: World Economic Outlook database.

3. EMDE resilience has improved since the 1970s and 1980s. Dynamics of Output per Capita Following Peaks 50s and 60s 70s and 80s 1990s 2000–06 Great Recession Years Years

4. In fact, from the 2000s, EMDEs spent more time in expansion—and had smaller downturns—than AEs 50s and 60s 70s and 80s 1990s 2000s Source: IMF staff calculations.

5. While AE growth in expansion has fallen over time, EMDE growth in expansion has been more stable. 50s and 60s 70s and 80s 1990s 2000s Source: IMF staff calculations.

6. Unpacking further, what factors are associated with greater resilience? • We look at three broad areas: • External and domestic shocks • Policy frameworks and policy space • Structural characteristics • Analytical approach: Look at how these factors affect the length of expansions and the speed of recoveries using standard tools of duration analysis • Bivariate – consider factors one-by-one • Multivariate – consider multiple factors simultaneously

7. Shocks, both external and domestic, tend to bring EMDE expansions to an end… Average Probability of Expansion Coming to an End Source: IMF staff calculations. Note: Statistically significant differences at the 10 percent level are denoted by starred labels.

8. …but improved policy frameworks and enhanced policy space help prolong expansions, and hasten recoveries… Effects of Policies on Expansion Duration Effects of Policies on Speed of Recovery Source: IMF staff calculations. Note: Statistically significant differences at the 10 percent level are denoted by starred labels. Recovery is defined as the number of years required to get back to pre-downturn levels of per capita output.

9. …while structural characteristics are more of a mixed bag, with fewer robust relationships. Effects of Structural Characteristics on Expansion Duration Effects of Structural Characteristics on Recovery Duration Source: IMF staff calculations. Note: Statistically significant differences at the 10 percent level are denoted by starred labels. Recovery is defined as the number of years required to get back to pre-downturn levels of per capita output.

10. Improved performance from the 1980s to the 2000s has been mainly due to policies and policy space Expected Mean Duration of Expansions Contribution to Change in Expected Mean Duration of Expansions from 1980s to 2000–07 2010–11 1990s Source: IMF staff calculations.

11. Concluding remarks

13. It is not just a commodity story… Dynamics of Output per Capita Following Peaks 50s and 60s 70s and 80s 1990s 2000–06 Great Recession Years Years

14. …nor is it only for the largest EMDEs. Dynamics of Output per Capita Following Peaks 50s and 60s 70s and 80s 1990s 2000–06 Great Recession Years Years 1Refers to the 30 largest emerging market and developing economies based on their average real GDP over the sample period.

15. Among EMDEs, EMs did better from the 1990s,while LICs improved most from the 2000s. Dynamics of Output per Capita Following Peaks 50s and 60s 70s and 80s 1990s 2000–06 Great Recession Years Years

16. Among regions, EMD Asia and Latin America have seen the most dramatic improvements. Dynamics of Output per Capita Following Peaks 50s and 60s 70s and 80s 1990s 2000–06 Great Recession Years Years

17. Sub-Saharan Africa also improved, but mostly in the 2000s. CIS-EM Europe was derailed by the crisis. Dynamics of Output per Capita Following Peaks 50s and 60s 70s and 80s 1990s 2000–06 Great Recession Years Years

18. What is behind the gains in EMDE resilience?Higher steady-state growth and lower variability 50s and 60s 70s and 80s 90s and 2000s Source: IMF staff calculations.

19. Why has performance improved? Some shocks have become less frequent, others more frequent… Relative frequency of shock in EMDEs (percent)

20. …but EMDE policy frameworks have improved, and policy space has increased. Share of EMDEs with characteristic (percent)

21. Structural factors are mixed – some are more supportive, others less so. Share of EMDEs with characteristic (percent)

22. Mixed patterns in other factors Share of EMDEs with characteristic (percent) Relative frequency of shock in EMDEs (percent)

23. What Ends Expansions?

24. Across regions and groups, some differences in drivers of improved resilience, but overall similar. Contribution of Shocks, Policies, and Structure to the Length of Expansions Source: IMF staff calculations.

25. Across regions and groups, some differences in drivers of improved resilience, but overall similar. Contribution of Shocks, Policies, and Structure to the Length of Expansions Source: IMF staff calculations.

26. And it’s not just commodities… Contribution of Shocks, Policies, and Structure to the Length of Expansions Source: IMF staff calculations.