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Exogenous Shocks and Growth Crises in Low-Income Countries: A Vulnerability Index

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  • Dabla-Norris, Era
  • Bal Gündüz, Yasemin

Abstract

This paper develops a new index which provides early warning signals of a growth crisis in the event of large external shocks in low-income countries (LICs). Multivariate regression analysis and a univariate signaling approach are used to map information from a parsimonious set of underlying policy, structural, and institutional indicators into a composite vulnerability index. Both the in-sample and out-of-sample predictive power of the index are high. In particular, it explains well the growth crises observed in LICs during the global financial crisis.

Suggested Citation

  • Dabla-Norris, Era & Bal Gündüz, Yasemin, 2014. "Exogenous Shocks and Growth Crises in Low-Income Countries: A Vulnerability Index," World Development, Elsevier, vol. 59(C), pages 360-378.
    • Handle: RePEc:eee:wdevel:v:59:y:2014:i:c:p:360-378
    DOI: 10.1016/j.worlddev.2014.02.001
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