Emerging Market Macroeconomic Resilience to External Shocks: Today versus Pre–Global Crisis

How resilient are emerging market economies to potentially tougher external conditions, especially if they become prolonged? This paper takes the view that initial economic conditions before the eruption of an adverse external shock matter, and they matter a lot. In particular, the literature shows that policy decisions taken in the pre-crisis period played a major role in explaining a country's performance, in terms of financial stability and economic growth, during the global financial crisis. With that as the starting point, the rest of this essay is organized in two sections. The first identifies the relevant variables that need to be assessed to determine emerging markets' resilience to adverse external shocks. Using a sample of 21 emerging market economies, the values of the identified variables in 2007 (the pre-global financial crisis year) are compared with the respective values at the end of 2014. The second section uses the identified variables to construct an indicator of relative resilience for emerging market economies. Despite some limitations, this indicator identifies how a country ranks against its peers and whether its relative ability to withstand external shocks has increased or decreased since the global financial crisis.