Mapping Economic Growth Models before the Crisis and Their Consequences Thereafter

Much literature on the recent global financial and economic crisis presents one crisis narrative, often based on the US experience, with little differentiation across countries. Only some scholars have used the theoretical lenses of Varieties of Capitalism or the Regulation School to consider cross-national differences. This paper draws on these contributions, but proposes a novel even if straightforward framework to examine growth models before the crisis. These models consist of different combinations of three ways to boost economic demand: domestic private deficits, domestic public deficits, and trade surpluses. Identifying these models across 28 OECD member states is the first contribution of this paper. Preliminary results show that half of these states relied only on domestic sources to boost the economy (private deficits, public deficits, or both). The countries with high trade surpluses mostly did not rely on a pure export-led model, but supplemented it with internal sources of boosting demand. In a second step I argue that different models led to different consequences in the wake of the crisis. According to the preliminary findings, countries with trade surpluses faced less severe declines in GDP and employment. Countries that strongly relied on public deficits before the crisis were particularly badly hit. My findings are in line with Varieties of Capitalism and the Regulation School by showing how the crisis itself differed cross-nationally given different previous growth models. However, my paper is the first to provide an empirically comprehensive and differentiated picture of the growth models countries followed before the crisis.