Rare Disaster Events, Growth Volatility, and Financial Liberalization: International Evidence

Purpose - This paper elucidates a nexus between the occurrence of rare disaster events and the volatility of economic growth by distinguishing the likelihood of rare events from stochastic volatility. We provide new empirical facts based on a quarterly time series. In particular, we focus on the role of financial liberalization in spreading the economic crisis in developing countries. Design/methodology - We use quarterly data on consumption expenditure (real per capita consump-tion) from 44 countries, including advanced and developing countries, ending in the fourth quarter of 2020. We estimate the likelihood of rare event occurrences and stochastic volatility for countries using the Bayesian Markov chain Monte Carlo (MCMC) method developed by Barro and Jin (2021). We present our estimation results for the relationship between rare disaster events, stochastic volatility, and growth volatility. Findings - We find the global common disaster event, the COVID-19 pandemic, and thirteen country-specific disaster events. Consumption falls by about 7% on average in the first quarter of a disaster and by 4% in the long run. The occurrence of rare disaster events and the volatility of gross domestic product (GDP) growth are positively correlated (4.8%), whereas the rare events and GDP growth rate are negatively correlated (-12.1%). In particular, financial liberalization has played an important role in exacerbating the adverse impact of both rare disasters and financial market instability on growth volatility. Several case studies, including the case of South Korea, provide insights into the cause of major financial crises in small open developing countries, including the Asian currency crisis of 1998. Originality/value - This paper presents new empirical facts on the relationship between the occurrence of rare disaster events (or stochastic volatility) and growth volatility. Increasing data frequency allows for greater accuracy in assessing a country's specific risk. Our findings suggest that financial market and institutional stability can be vital for buffering against rare disaster shocks. It is necessary to preemptively strengthen the foundation for financial stability in developing countries and increase the quality of the information provided to markets.

Replacement income and informal commerce during the COVID-19 pandemic in Huancayo, Peru.

This article constitutes an empirical contribution regarding the correlation between economic informality and the COVID-19 pandemic in Peru. Based on interviews with merchants in the informal sector of the city of Huancayo, the pandemic-related impacts are analyzed in relation to income and livelihoods. It is argued that informal employment played an important role in the tragic indicators of public health in the country. The intrinsic flexibility of this type of activities, specifically for walking merchants, and the lack of access to systems and programs of social security were the main reasons that people worked in this sector to replace the income they lost due to confinement. Thus, the notion "replacement of income” in the economy appeared during the pandemic. The heterogeneity among those who carry out informal work, specifically in terms of their access to different resources, enabled such work and enabled some people to control their exposure to the virus. It is concluded that the focus on economic formalization of the last decades of financial liberalization are not considered advantages that informal activities offer in relation to formalization. In fact, informality continues to offer the best opportunity for immediate income and highly flexible options, in particular for adapting to crisis situations like the pandemic. (English) [ FROM AUTHOR] Este artículo constituye un aporte empírico sobre la correlación entre la informalidad económica y la pandemia de la covid-19 en Perú. Con base en entrevistas a comerciantes del sector informal de la ciudad de Huancayo, se analizan los impactos pandémicos en relación con sus ingresos y medios de vida y se sostiene que el empleo informal tuvo una gran repercusión en los trágicos indicadores de salud pública en el país. La flexibilidad intrínseca de este tipo de actividades, puntualmente para el comercio ambulatorio, y la falta de acceso a sistemas y esquemas de protección social fueron las principales razones por las que las personas emprendían en este sector para reemplazar los ingresos que perdieron debido al confinamiento. Así, se introduce la noción "recambio de ingresos” en la economía durante la pandemia. La heterogeneidad entre quienes realizan labores informales, específicamente en el acceso a diferentes tipos de recursos, permitió tales emprendimientos y facilitó que algunas personas controlen su posible exposición al virus. Se concluye que en el enfoque de la formalización económica de las últimas décadas de liberalización financiera no se consideran las ventajas que las actividades informales ofrecen frente a la formalización. De hecho, la informalidad sigue brindando la mejor oportunidad de ingresos inmediatos y opciones altamente flexibles, en particular para adaptarse a situaciones de crisis como la pandemia. (Spanish) [ FROM AUTHOR] Copyright of Íconos. Revista de Ciencias Sociales is the property of FLACSO Ecuador (Facultad Latinoamericana de Ciencias Sociales) and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full . (Copyright applies to all s.)

Financial Liberalization and Economic Development in Korea: 1980–2020 By Yung Chul Park, Joon-Kyung Kim, and Hail Park,. Cambridge, Mass.: Harvard University Press, 2021. xix, 315 pp. ISBN: 9780674251281 (cloth)

Much less attention has been given to South Korea's more recent political economy, and even less to its financial liberalization and how that has impacted not only economic growth but also democratization and social equality. [...]this serious study based on careful examination of economic data has something new and important to add. Except for the insurance industry, the financial markets never really opened up much, and five big domestic banks still dominate the banking sector. [...]as every South Korean knows, the power of the major chaebols, such as Lotte, LG, Samsung, and Hyundai, and the families that control them has not been effectively curtailed.