Exogenous shocks come from outside the normal economic cycle and can either raise or lower a country’s long-term growth potential. Key types include:
Policy changes: Pro-growth policies (like tax reform or infrastructure investment) can boost trend growth, while restrictive ones (like trade barriers) can hinder it.
Technological innovations: Major breakthroughs—such as the internet or smartphones—expand productivity and potential output.
Geopolitical events: Conflicts usually slow growth by redirecting resources, but peace or even competition (like the space race) can spur innovation and economic expansion.
Natural disasters: These initially reduce output, but if rebuilding uses modern technologies, they may lead to higher efficiency and future growth.
Resource shocks: Discoveries or improved extraction methods (like fracking) enhance growth, while resource shortages (e.g., 1973 oil crisis) can slow it.
Financial crises: These damage trust and reduce lending, which disrupts efficient capital allocation and can lower both output and the long-term growth path.