Econometrics Seminar: Bertrand Candelon

Globalization and the New Normal Hypothesis

Bertrand Candelon, Institut Louis Bachelier

Persistently lower economic growth after the global financial crisis has altered the global political discourse. Protectionism and isolationism are gaining ground. But is globalization the culprit? As recent studies of the "New Normal" suggest, short-term GDP growth rates are lower following periods of turmoils such as banking, currency and stock market crises.  This paper determines precisely when globalization becomes a curse instead of a blessing. Using data covering almost hundred countries from 1970 until 2016 considering a non-linear dynamic panel representation. we estimate how periods of turmoil including banking, currency and stock market crises impact negatively real GDP growth, allowing the impact of crises to be a function of the degree of globalization measured by the KoF globalization indices. We find that globalization has two faces. It increases output growth rate significantly but exposes it to higher impact from financial sectors (banking and stock markets crises). It definitely stresses the important of an adequate financial regulation in order to fully benefit from the fruits of globalization. (with Hasse jb, Carare a, Jing l.)