Browse by title

Benefiting from an event analysis, we investigate the transmission mechanism through which the recent global crisis impacted the 15 worst affected countries and the reasons behind the weak performances of these countries. The overall evidence shows that the trade channel was the most important mechanism in the transmission of the crisis from advanced economies to developing countries. The role of the financial channel varied in different countries. Some countries encountered massive financial reversals; some others experienced different degrees of financial stops. In general, as expected, the most affected countries in our set are the ones that experienced both financial reversals and a dramatic decline in their exports. Although almost all these countries experienced spectacular growth performances from 2002 to 2008, they also accumulated significant vulnerabilities, which were mainly related to the structural problems of their integration into the world economy during the same time period. Furthermore, those countries that were unwilling or unable to conduct considerable countercyclical fiscal and monetary policies were among the most affected ones in our sample.

This chapter reviews major trends in the last decades of economic development in advanced and emerging economies. It highlights and presents different explanations for the slowdown in economic activity observed in developed economies and in many developing countries (though not all); the increased disparity in income distribution along different measures; and the explosive growth in global capital flows and in the volatility of these flows. The chapter emphasizes the need for an economic theory with the ability to explain in an integrated manner these contemporaneous stylized facts.