May 16, 2014

Discipline drives turnarounds

From this paper by Anusha Chari & Peter Blair Henry. A draft is here

According to the authors, what is behind this graph, and specially behind the gap in GDP growth between advanced and developing (and emerging) economies, is trade liberalisation and fiscal discipline. 
Measured by the number of protectionist measures imposed since November 2008, France, Germany, Italy, and the United Kingdom are all on the list of the world’s top 10 most protectionist countries (Evenett, 2013). p. 4
Korea is a historical example of the benefits of reductions of obstacles to trade. 

The article makes the interesting point that the stock market tells when austerity measures are good in the long term, and illustrates the idea in the context of Brazil in 1994, where austerity measures were well received in the stock market that showed large, abnormal, returns.

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