Alina Carare, Bertrand Candelon, Jean-Baptiste Hasse, and Jing Lu
INTERNATIONAL MONETARY FUND
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.