The impact of the global financial crisis: What does this tell us about state capacity and political incentives to respond to shocks and manage risks? Literature review. Part 2: State capacity and response to external economic shocks
Abstract
Much of the literature on external shocks, and government responses to these shocks, focuses on the specific drivers of the shock and on the role of economic institutions and of economic policy measures taken as a result. As a consequence, issues of political economy and political context – such as the role played by political settlements – have at times been overlooked.
This literature review seeks to draw on a wide range of material, including some relevant political economy thinking, as well as literature on structural adjustment and state capacity. Where relevant, it also brings in analysis of specific external shocks, such as the East Asian financial crisis. Overall, it finds that there appears to be increasing recognition of the extent to which political factors can contribute to both increasing or decreasing vulnerability to external shocks, as well as to shaping the nature of the response to shocks. Further research is needed to pin down the key dimensions of these political factors. Four themes are identified from this preliminary literature review, namely flexibility and adaptability of decision making, the autonomy of the state particularly in terms of the bureaucracy, state capacity, and the nature of the political settlement and political interests.
Citation
Wild, L. The impact of the global financial crisis: What does this tell us about state capacity and political incentives to respond to shocks and manage risks? Literature review. Part 2: State capacity and response to external economic shocks. ODI, London, UK (2012) 9 pp.
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