Post COVID-19 exit strategies and emerging markets economic challenges

Joshua Aizenman; Hiro Ito

doi:10.1111/roie.12608

Post COVID-19 exit strategies and emerging markets economic challenges

Rev Int Econ. 2022 Mar 17:10.1111/roie.12608. doi: 10.1111/roie.12608. Online ahead of print.

Authors

Joshua Aizenman^{1

2}, Hiro Ito³

Affiliations

¹ Dockson Chair in Economics and International Relations University of Southern California Los Angeles California USA.
² NBER Cambridge Massachusetts USA.
³ Department of Economics Portland State University Portland Oregon USA.

Abstract

We study emerging markets' 1980s lost growth decade, triggered by the massive reversal of the snowball effect in the US during 1974-1984, finding that higher flow costs of servicing debt overhang explain the dramatic decline in growth rates of exposed emerging markets. We also show how lowering the US cost of servicing its public debt has been associated with higher US, Japan, and Western Europe real output growth rates during the post WWII recovery decades, 1946-1956, and validate that fiscal adjustments of large countries have strong growth and volatility spillovers effects on exposed emerging markets and developing countries.

Keywords: COVID‐19; financial crisis; globalization.