Analysis of hysteresis in convergence after global financial crisis of 2007

Abstract

Researchers of hysteresis outline the long-term change in growth paths of economies. It entails the post-crisis change in growth paths of economies through the change of macroeconomic indicators, such as employment and output. Recessionary shocks might have positive or negative impacts on economies’ growth paths which in turn affects convergence and divergence in economies. In this research, hysteresis is explored in convergence across 110 countries induced by the global financial recession of 2007. Findings suggest that as a post-crisis change, hysteresis in convergence is in place. The difference arises in adaptability of economies to changes. The reason for convergence of poor and rich countries might be more intensive foreign investments in developing nations. These investments have a positive influence on economic performance in developing countries by increasing employment rates.