Essays on developing country vulnerability to external shocks in light of the Great Recession

Date: 11 September 2015

Venue: University of Antwerp - Stadscampus - Promotiezaal Grauwzusters - Lange Sint-Annastraat 7 - 2000 Antwerp

Time: 5:00 PM

PhD candidate: Dennis Essers

Principal investigator: Prof Danny Cassimon

Short description: PhD defence Dennis Essers - Faculty of Applied Economics


This dissertation takes the 2008-2009 global financial and economic crisis as a vantage point to investigate developing country vulnerability to external shocks. It is loosely organised around three research questions:

  • one, how was the global crisis transmitted to developing countries and what does this tell us about vulnerability-reducing strategies?;
  • two, what explains cross-country heterogeneity in growth during the crisis?;
  • three, how did the crisis manifest itself beyond the macroeconomic level?

First, we document how the global crisis hit developing countries as external shocks, mainly to trade and private capital flows. We argue vulnerability to shocks is a combination of shock probability and severity, exposure, and resilience, and can be dealt with by coping, prevention, self-insurance and/or market insurance/hedging. Countries’ and international financial institutions’ experiences with the above strategies suggest much room for improvement, especially with respect to low-income countries.

We zoom in on prevention by local currency government bond market development and find that in Sub-Saharan Africa the capitalisation of such markets relates negatively to fiscal balances and inflation and positively to common law heritage, institutional quality and democracy.

We also examine self-insurance through international reserves by calibrating a representative agent model of a low-income country subject to terms-of-trade shocks. We confirm that optimal reserves increase with shock probability, duration and severity and with the interest benefits (costs) of reserves (market borrowing). An extended model formalises the partial substitution between reserves and shock-contingent credit lines.

Second, we investigate the effect of democracy on developing country growth during the crisis. Simple OLS reveals a seemingly robust negative correlation between democracy and crisis growth. Once endogeneity is accounted for using instrumental variables, however, the results point to a positive effect.

Third, South African labour market mobility since the global crisis is studied. We uncover large gross flows between different labour market statuses underlying the net increase in unemployment rates over 2008-2012, and show the latter is due more to reduced inflows into employment than to increased outflows. Higher (matric or post-matric) education significantly increased individuals’ chances of remaining in or finding jobs, although less so during the first post-crisis years. 

More information
For those interested in a hard copy of the dissertation please contact Dennis Essers directly at