Maria Balgova, Alexander Plekhanov, 18 November 2016

The major increase in the volume of non-performing loans as a result of the recent financial crisis was predictable, but the persistence of this bad debt is a cause for concern. Using a sample of 100 countries, this column compares economic outcomes in three different scenarios following a rise in non-performing loans. Reducing these loans has an unambiguously positive medium-term effect, with countries that experience an influx of fresh credit growing the fastest. Allowing high levels of non-performing loans to persist, on the other hand, can cost more than two percentage points of economic growth annually.

Lawrence Summers, Antonio Fatás, 25 October 2015

The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Using data seven years after the beginning of the crisis as well as estimates on potential output our analysis suggests that attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their negative impact on output.  Our results provide support for the possibility of self-defeating fiscal consolidations in depressed economies as developed by DeLong and Summers (2012).

Bernhard Dachs, Georg Zahradnik, 06 July 2014

The Global Crisis brought a halt to three decades of R&D internationalisation, in which foreign firms’ share of total R&D expenditure had increased in almost all countries where data is available. However, this column argues that the crisis did not lead to a new global distribution of overseas R&D expenditure, despite the erosion of the EU’s share. The persistence of R&D expenditure is attributed to the costs of relocating R&D and to the autonomy of foreign subsidiaries.