Economic shocks and the global environment

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Economic shocks and the global environment, Volume 1

Author:	McCarthy, F. Desmond; Dhareshwar, Ashok;	Collection Title:	Policy, Research working papers ; no. WPS 870. International economic analysis and prospects
Country:	Brazil; Korea, Republic of; Ireland;	Date Stored:	2001/04/26
Document Date:	1992/03/31	Document Type:	Policy Research Working Paper
Language:	English	Major Sector:	(Historic)Economic Policy
Region:	East Asia and Pacific; Europe and Central Asia; Latin America & Caribbean	Report Number:	WPS870
Sub Sectors:	Trade	SubTopics:	Environmental Economics & Policies; Achieving Shared Growth; Economic Theory & Research; Free Trade; Trade Policy
Volume No:	1

Summary: Policy formulation in most countries is complicated by the role of the external economic environment, especially during periods of great external shocks. The authors examine how individual countries were affected by, and responded to, external shocks. They apply an enhanced version of an earlier methodology for estimating the effect of three kinds of shock: terms of trade, variations in global demand, and changes in the interest rate. They discuss the magnitude of these shocks and country responses to them in Brazil, Ireland, and Korea and present numerical results for some other countries. The authors find that the magnitude of external shocks may be greater than previously recognized. The size and components of the shock depend on such factors as the country's openness to trade, the composition of its imports and exports, and its level of external debt. The authors also found that countries differ greatly in their responses to external shocks. Some rely on additional external financing, some place more emphasis on export promotion, and others favor import substitution. The authors conclude that the magnitude and composition of external shocks should be part of any explanation of why growth rates differ among countries.


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