Effect of Productive Capacities on Economic Resilience in Developing Countries

 Sena Kimm Gnangnon

Abstract
COVID-19 has generated renewed interest in strengthening economic resilience to future shocks. Developing countries are disproportionately affected by adverse shocks and lack the resources to weather them. This paper contributes to this debate by investigating the effect of productive capacities on economic resilience in a panel dataset of 118 developing countries over the period 2000-2018. It constructs a regression-based economic resilience indicator, and makes use of the indicator of productive capacities recently developed by the UNCTAD. The development of productive capacities is associated with greater economic resilience. This is particularly the case for countries with greater trade openness, greater capital account openness, and those that promote a stable macroeconomic environment. Interestingly, development aid appears to matter for the effect of productive capacities on economic resilience. On the one hand, the magnitude of the positive economic resilience effect of productive capacities increases as countries receive higher Aid for Trade (AfT) flows. On the other hand, NonAfT flows (i.e., other development aid flows that AfT flows) hinder the possible positive contribution of productive capacities to economic resilience. These findings have important policy implications.

Keywords
productive capacities, economic resilience, developing countries