Table 6 shows the results from two estimations: one using annual data and the other using twoyear averages.<sup>7</sup> As noted earlier, the objective of using the two-year averages is to smooth out business cycle effects. Clearly, an even longer period would have been desirable from the perspective of purging business cycle effects, but limitations in terms of the number of available data points prevented us from doing so. The estimated coefficient in the multinomial regressions reflects the likelihood of being in one cluster relative to a reference cluster. As noted earlier, the reference group used is the lower growth and higher vulnerability (V) cluster, which is the worst of all possible outcomes.

**Table 6. Multinomial Logit Estimations based on Growth and Vulnerability Clusters** 1/

|||||**VUL**|**NER**|**ABILITY**||||
|---|---|---|---|---|---|---|---|---|---|
|||<br>|**Annual**<br>|**Data**<br>||**Two**<br>|**-Year**<br>|**Average**<br>|**s**<br>|
|||**Lowe**|**r**|**Highe**|**r**|**Lowe**|**r**|**High**|**er**|
|Trade openness; exports plus imports (% of GDP)||-0.024|***|||-0.022||||
|Export and import growth rates, difference in %||-0.017||||0.106|*|||
|Financial openness; FX assets & liabilities (% of GDP)||-0.024||**R**||-0.028||**R**||
|FDI, net, % of GDP||0.038||**STE**||0.083||**STE**||
|Counter-cyclical fiscal policies 2/||-0.230||**LU**||0.975||**LU**||
|Monetary tightening; Δ in velocity|**wer**|-0.015||**E C**||0.025||**E C**||
|Exchange rate flexibility|**Lo**|-0.292||**ENC**||0.123||**ENC**||
|Capital controls||0.273||**ER**||-0.036||**ER**||
|Initial level of income, share of G7||-4.589||**REF**||-7.907||**REF**||
|Vulnerability index, VIX||0.060|*|||-0.175|***|||
|Oil trade balance as share of exports and imports|**TH**|0.318|**|||0.039||||
|Constant|**W**|4.283|***|||7.246|***|||
|Trade openness; exports plus imports (% of GDP)|**RO**|-0.003||0.029|**|-0.005||0.041|**|
|Export and import growth rates, difference in %|**G**|-0.068|**|-0.123|***|0.106|*|0.084||
|Financial openness; FX assets & liabilities (% of GDP)||-0.081|***|0.049|**|-0.080|*|0.039||
|FDI, net, % of GDP||0.062||-0.151||0.098||-0.029||
|Counter-cyclical fiscal policies 2/|**r**|-2.032|***|-2.705|***|-0.113||-0.928||
|Monetary tightening; Δ in velocity|**he**|-0.016||-0.101|***|0.084|*|-0.026||
|Exchange rate flexibility|**Hig**|0.001||0.668|*|0.294||1.170|**|
|Capital controls||-0.633|**|0.008||-0.481||-0.462||
|Initial level of income, share of G7||-9.681|**|-11.277|***|-13.663|**|-20.481|***|
|Vulnerability index, VIX||0.161|***|-0.204|***|-0.117|**|-0.305|***|
|Oil trade balance as share of exports and imports||0.474|***|0.349|***|0.119|**|0.090||
|Constant||-0.536||0.379||5.328|*|0.497||
|Pseudo R-squared||0.396||||0.346||||
|Sources: IMF’s World Economic Outlook database and auth<br> <br>Number of observations|ors’ calculatio<br>|ns.<br> <br>178||||<br>97||||

1/ Robust (and clustered) standard errors. *, **, and *** denotes significance at 10, 5, and 1 percent. All regressors, except the VIX, are entered lagged. 2/ Difference between fiscal balance and cyclically-adjusted fiscal balance; in percent of GDP.

The estimation results are best discussed with a few examples. In the estimation that uses the two year average data, trade openness enters with a negative (but not statistically significant) sign in the lower growth and lower vulnerability (L) cluster. Thus, trade openness reduces the likelihood of being in this cluster relative to the reference cluster V (i.e., relative to the lower growth and higher vulnerability cluster). In contrast, trade openness enters with a positive (and statistically significant) sign in the higher growth and higher vulnerability cluster (H), which indicates that it increases the likelihood of being in

> 7 The simple two year average is performed for each of the variables; the first two-year average covers the period 1999-2000 and the last two-year average the period 2007-08. CA is performed on these average values.

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