Do Weak Institutions Prolong Crises? On the Identification, Characteristics, and Duration of Declines During Economic Slumps

44 Pages Posted: 11 Feb 2014

See all articles by Richard Bluhm

Richard Bluhm

Leibniz University Hannover; UNU-MERIT; Maastricht Graduate School of Governance

Denis de Crombrugghe

Maastricht University

Adam Szirmai

Eindhoven University of Technology (TUE) - Faculty of Technology Management

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Date Written: January 31, 2014

Abstract

This paper defines economic slumps as sequences of structural breaks exhibiting a specific pattern. We identify 58 such episodes between 1950 and 2008 among 138 countries, and then examine the phases of decline and their duration. In some countries declines last extremely long, and we put several likely contributing factors to the test. We find evidence that weak institutions precede crises and, interestingly, positive reforms occur thereafter. Strong institutions shorten the duration of crises, ethnic cleavages do the reverse. However, the negative effects of ethnic cleavages are not insurmountable: an interaction effect suggests they can be offset by appropriate institutions.

Keywords: economic slumps, crises, institutions, structural breaks, duration analysis

JEL Classification: O430, O110, C410, F430

Suggested Citation

Bluhm, Richard and Crombrugghe, Denis de and Szirmai, Adam, Do Weak Institutions Prolong Crises? On the Identification, Characteristics, and Duration of Declines During Economic Slumps (January 31, 2014). CESifo Working Paper Series No. 4594, Available at SSRN: https://ssrn.com/abstract=2393931

Richard Bluhm (Contact Author)

Leibniz University Hannover ( email )

Institute of Macroeconomics
Koenigsworther Platz 1
Hannover, 30167
Germany

HOME PAGE: http://mak.uni-hannover.de

UNU-MERIT ( email )

Keizer Karelplein 19
Maastricht, 6211TC
Netherlands

Maastricht Graduate School of Governance ( email )

Keizer Karelplein 19
PO Box 616
Maastricht, 6200MD
Netherlands

Denis de Crombrugghe

Maastricht University ( email )

Keizer Karelplein 19
PO Box 616
Maastricht, 6200MD
Netherlands

HOME PAGE: http://www.governance.unimaas.nl

Adam Szirmai

Eindhoven University of Technology (TUE) - Faculty of Technology Management ( email )

P.O. Box 513
5600 MB Eindhoven
Netherlands

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