Ms. Alina Carare, Bertrand Candelon, Jean-Baptiste Hasse, and Jing Lu
This study expands the empirical specification of Cerra and Saxena (2008), and allows short-term
output growth regimes to be determined by globalization. Relying on a non-linear dynamic panel
representation, it reconciles the earlier results in the literature regarding the two opposite
narratives of the effects of globalization on output growth. Countries experience higher growth, on
average, the more open and integrated they are into the world. However, once they reach a certain
globalization threshold (endogenously estimated), countries may also experience a new normal,
persistently lower short-term output growth following a financial crisis. The benefits, as well as
vulnerabilities, accrue earlier in the globalization process for low- and middle-income countries.
To solely reap the globalization benefits on growth, sound policies should be in place to mitigate
the negative effects stemming from increased vulnerabilities brought by globalization.
This paper develops stylized facts about the inflation process in developing countries, focusing particularly on the relationship between the exchange rate regime and the sources of inflation. Using annual data from 1964 to 1998 for 53 developing countries, we find that money growth and exchange rate changes-factors typically related to fiscal influences-are far more important in countries with floating exchange rate regimes than in those with fixed exchange rates. Instead, inertial factors dominate the inflation process in developing countries with fixed exchange rate regimes.