Some Asian countries adopted an economic package with a focus on infrastructure investments. For instance, China implemented an ambitious infrastructure investment program worth approximately US$ 12 billion for the period 1998-2000 to relieve the binding constraint on growth, with a focus on roads and highways, which in turn opened up the interior region to more commerce. Japan’s US$ 127 billion stimulus package is yet another example that targeted spending on infrastructure projects mainly for science, technology, and telecommunications (Richardson, 1998). In addition, Japan also announced a scheme of a special yen loan facility of a maximum amounting to a total of up to 600 billion yen (approximately US$ 5 billion) to contribute to economic structural reforms in the wider East Asia region by promoting the infrastructure developments.<sup>6</sup> There is macroeconomic evidence documenting the fast recovery in some of the countries in the region that implemented fiscal stimulus packages, but more detailed evidence on the assessment of multipliers is scarce. In the case of China, improvements in the highway system, port facilities, telecommunications, and education helped the economy to get out of deflation in 2003 and increased the average growth in GDP. This was followed by an increase in government revenue that allowed public debt to decline from about 30 percent of GDP in the 1990s to about 20 percent in 2007 (Jha, 2009). Despite the large and decisive fiscal stimulus in the 1990s (7 percent of GDP per year on average), Japan continued to face an ongoing challenge of promoting faster economic growth. Chari and Henry (2015) show that the divergence in recoveries does not depend on the size of fiscal stimulus but also on its persistence. Unlike Europe, some East Asian countries continued to implement stimulus in response to the Asian Financial Crisis of 1997 until growth recovered. On the other hand, large and rapid fiscal consolidation in Europe exerted a strong, negative impact on growth.

# **3.3 The Great Recession**

The Great Recession (also referred to as the financial crisis of 2008-2009) started with the bankruptcy of a US investment bank, Lehman Brothers, followed by an unprecedented dislocation of financial markets. It severely hit the stability and confidence of financial systems. To ease the negative economic impacts of the 2008-2009 financial crisis, many countries implemented fiscal stimulus packages. As each country responded differently to the 2008-2009 global crisis, the impacts of their fiscal stimuli are unique as well.

Countries such as the Russian Federation and the United Kingdom mostly focused on tax cuts, while spending measures were the main focus in countries like Argentina, China, and India. Expansion of social security benefits by increasing spending on public health and unemployment benefits (Canada, France, Russia, the United Kingdom, and the United States), cash transfer programs (Brazil, Canada, Chile, France, Italy, Japan, Mexico, and Korea), pensions (Argentina, Australia, Canada, and China) and extending concessional loans to low-income citizens (Saudi Arabia) are some of the mostly preferred components of stimulus packages (Jha, 2009). Infrastructure investment programs were parts of the stimulus programs that were enacted in the wake of the 2008-09 financial crisis to bolster economic conditions, with the share allocated to infrastructure varying substantially across countries (Figure 5).

> <sup>6</sup> Ministry of Foreign Affairs of Japan (2000). https://www.mofa.go.jp/policy/economy/asia/crisis0010.html (Accessed in September 21, 2020). During the crisis, there had been pressure on Japan to stimulate its economy and increase its imports from the region to contribute to economic recovery of other Asian economies. Sales to Japan account for 12 percent of Malaysia’s GDP, and in the range 5 to 7 percent for Indonesia; Korea; Taiwan, Chian; and Thailand (The Economist, 1998).

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