The Financial Crisis And Developing Countries

The book provides one of the most detailed and comprehensive reviews of the growth experience of a group of low and middle income countries before and during the global crisis. It then explores their growth prospects after the recovery and how they may be shaped by the new global economic environment.

As a response to the global financial and economic crisis that began in 2008, many developing and emerging-market economies undertook resolute countercyclical monetary and fiscal actions, which paralleled those of the developed countries. These policy responses contributed significantly to the recovery of the world economy in 2010 and 2011. In particular, the strong and fast responses of Brazil, China and India helped mitigate deflationary risks and avoid a repetition of the Great Depression of the early 1930s. On the other hand, reforms of financial regulation and supervision are taking time to advance, and little progress has been achieved so far in implementing measures to reduce global imbalances and to avoid a malfunctioning of the international exchange-rate system. These would contribute to greater coherence between the international trading and financial systems, and to creating a more stable international economic environment for development. This is a collection of papers that contribute to the debate on these topics, putting the South at centre stage. It examines how the countries of the South were affected by the global economic and financial crisis, and how they responded to it.

The world economy is currently in the throes of a global economic crisis reminiscent of the great depressions of the 1930s and the 1870s. As back then, the crisis has exposed the major structural imbalances in financial and credit markets in addition to global trade forcing many governments, developed and developing, to impose debilitating austerity measures that are exacerbating the structural weaknesses that caused the crisis in the first place. This volume offers historical insights into the origins of the contemporary crisis as well as detailed analyses of the financial and trade dimensions, an assessment of the technological and innovation context along with perspectives on the implications for unemployment and gender imbalances.

This year marks the tenth anniversary of the 2009 global recession. Most emerging market and developing economies weathered the global recession relatively well, in part by using the sizable fiscal and monetary policy ammunition accumulated during prior years of strong growth. However, their growth prospects have weakened since then, and many now have less policy space. This study provides the first comprehensive stocktaking of the past decade from the perspective of emerging market and developing economies. Many of these economies have now become more vulnerable to economic shocks. The study discusses lessons from the global recession and policy options for these economies to strengthen growth and prepare for the possibility of another global downturn.

The World Bank Group has responded to the global economic crisis with a strong countercyclical expansion of financing. Its disbursements of 80 billion in the past two fiscal years were the largest among the Multilateral Development Banks. There was notable variation across the WBG, with vastly increased IBRD lending, moderately higher IDA financing, and overall responses from IFC and MIGA that were not counter-cyclical. The differences reflected the interplay of financial capacities, business models, and available instruments. While the level of financial flows is one aspect of crisis response

The Financial Crisis and Developing Countries discusses and analyses regional and country specific impacts of the financial crisis in emerging markets and developing countries, covering all continents. Using heterodox and mainstream methodologies, the book develops a multidisciplinary perspective on the crisis phenomenon as it examines how the crisis changes concepts of development, critically discusses the mainstream approach, analyses (global) governance issues (including the G20) and shows the actual impact for the poor and crisis vulnerable.

This volume documents and explains the remarkable resilience of emerging market nations in East Asia and Latin America when faced with the global financial crisis in 2008-2009. Their quick bounceback from the crisis marked a radical departure from the past, such as when the 1982 debt shocks produced a decade-long recession in Latin America or when the Asian financial crisis dramatically slowed those economies in the late 1990s. Why? This volume suggests that these countries' resistance to the initial financial contagion is a tribute to financial-sector reforms undertaken over the past two decades. The rebound itself was a trade-led phenomenon, favoring the countries that had gone the farthest with macroeconomic restructuring and trade reform. Old labels used to describe "neoliberal versus developmentalist" strategies do not accurately capture the foundations of this recovery. These authors argue that policy learning and institutional reforms adopted in response to previous crises prompted policymakers to combine state and market approaches in effectively coping with the global financial crisis. The nations studied include Korea, China, India, Mexico, Argentina, and Brazil, accompanied by Latin American and Asian regional analyses that bring other emerging markets such as Chile and Peru into the picture. The substantial differences among the nations make their shared success even more remarkable and worthy of investigation. And although 2012 saw slowed growth in some emerging market nations, the authors argue this selective slowing suggests the need for deeper structural reforms in some countries, China and India in particular.

We provide one of the first attempts at explaining the differences in the crisis impact across developing countries and emerging markets. Using cross-country regressions to explain the factors driving growth forecast revisions after the eruption of the global crisis, we find that a small set of variables explain a large share of the variation in growth revisions. Countries with more leveraged domestic financial systems and more rapid credit growth tended to suffer larger downward revisions to their growth outlooks. For emerging markets, this financial channel trumps the trade channel. For a broader set of developing countries, however, the trade channel seems to have mattered, with countries exporting more advanced manufacturing goods more affected than those exporting food. Exchange-rate flexibility clearly helped in buffering the impact of the shock. There is also some -weaker-evidence that countries with a stronger fiscal position prior to the crisis were hit less severely. We find little evidence for the importance of other policy variables.