Recovery from Economic Collapse: Insight from Input-Output Models and the Special Case of a Collapsed Oil Producer

ESAU Working Paper 6 finds evidence from eight countries having suffered significant, multi-year, falls in per capita incomes, that the majority made remarkable swift economic recoveries. Their record differs from the conclusions presented in the some of the post-conflict literature according to which the supply response is delayed by 3-4 years by infrastructural and institutional bottlenecks. The paper tests the hypothesis, using a very simplified input-output model with stylised calibration, that demand-side stimuli from expenditure on government service, investment or exports, play a significant role in promoting recovery. The model simulates early years' recovery well, but the later recovery period years poorly. The paper presents a partial recovery scenario for Iraq showing that stimulus mainly from oil-financed public expenditure could raise per capita income by some 50% in 5 years.