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Serdal Bahçe and Ahmet Haşim Köse

This study has an objective of providing evidence for the fact the last global capitalist crisis proceeded very unevenly and most of the countries in the Global South were not affected to the same extent as the developed capitalist world. Moreover, the trend of a decreasing share of developed capitalist countries in world income began prior to the crisis and continued during the crisis. The Global South’s wage share showed a steep incline during the crisis, and most of this incline was due to the contraction of output. Finally, this study shows that the advanced countries and the countries in the Global South exhibited different and antithetical trends during the crisis. In the South, most of the countries increased their output, albeit at a lower rate compared to the pre-crisis period, and income distribution improved for most of these countries. On the other hand, most of the developed countries experienced a decline in output and worsening income distribution. However, in essence, these two seemingly divergent paths were the results of the one totalizing tendency embedded in the permanent dynamics of global capitalism.
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Rex A. McKenzie

This chapter focuses on the subject of monetary transmission in Africa. It begins with a report on the effects of the financial crisis of 2008 in Africa. In the countries with more developed financial systems the financial channel proved to be the most important in transmitting the crisis. In the more peripheral countries the trade channel proved to be the most important. Where countries were able to withstand the global shock coming from the financial crisis they did so with a diversified group of trading partners in fast growing economies. The chapter then turns to examine three post crisis institutional developments and asks, how are: (a) an increased momentum towards regional integration, (b) the rise of Pan African banking and, (c) an increase in cross border flows, affecting the monetary transmission mechanism (MTM) in Africa. It is clear from the literature that the rise of Pan African banking and the regionalization thrust of the authorities are deepening the financial channels between countries. But with respect to cross border flows, the huge size of deposits maintained by Africa’s BIS reporting banks suggest relatively low levels of bank intermediation and competition. Thus the benefits that are assumed to accrue as a result of increased cross border flows are withdrawn from the local economy and stored up in the BIS banks. We know large deposits reflect the expectations of the deposit holders. But beyond that very little is known about the role of expectations and the workings of the expectations channel in monetary transmission in Africa. Even less is known about how such expectations would interact with those formed as a result of operations in the large informal sectors which characterise African macro economies. Until research can bridge this gap, the increasing cross border flows with the large deposits held in BIS banks form the basis yet another explanation for the historical weakness of the MTM in Africa.
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Edited by Hasan Cömert and Rex A. McKenzie

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Hasan Cömert and Mehmet Selman Çolak

This chapter focuses on the impacts of the recent global crisis on the Turkish economy and the policy measures taken in response to the crisis. The Turkish economy was adversely affected by the crisis through three main channels, namely expectations, trade and finance. The distinctive characteristic of the crisis was a severe export shock, which can account for an important part of the decline in production in Turkey. Besides this, a sudden stop in financial flows worsened the credit conditions in the economy. As a result, the Turkish economy witnessed one of its worst economic downturns after the Second World War. In fact, the Turkish growth performance was one of the worst among developing countries. However, unlike previous crises, the financial markets in Turkey and many other developing countries did not experience a collapse. We argue that this is mainly related to the small magnitude and short duration of the financial shocks hitting Turkey and other developing countries relative to the ones in previous decades. In this sense, the Turkish economy might not have been fully tested during the last global crisis. How the economy will behave in case of a larger financial shock is still unknown.
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Hasan Cömert and Esra Nur Uğurlu

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.
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The Global South after the Crisis

Growth, Inequality and Development in the Aftermath of the Great Recession

Edited by Hasan Cömert and Rex A. McKenzie

This volume is split into two accessible sections. The first part concentrates on the impact of the crisis on growth, inequality, policy responses and policy shifts in key areas such as central banking. The second part comprises individual country case studies and includes an exploration of the vulnerabilities related to the integration of developing economies into the world economy. The effect of the crisis on trade, and the ways in which some developing countries have entered into a prolonged period of stagnant growth following the global crisis are all considered.
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Shankaran Nambiar

The economic crisis of 2008 had its origins in the United States and subsequently affected the economies of developed countries, including the European Union, Japan and Singapore. These developments had a tremendous impact on the Malaysian economy. This article argues that, because of its size and openness, Malaysia was severely affected by the crisis through trade and financial channels. The instabilities in foreign markets led to poor demand for Malaysian exports. This led to a decline in Malaysian output and thus to labor market shocks, leading to retrenchments throughout the economy. The severity of the crisis suggests that Malaysia should not be unduly reliant on export led growth.
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Orlando Justo and Juan E. Santarcángelo

This chapter explores on the factors that made it possible for the Bolivian government to manage the consequences of the global financial crisis without major disruptions. The government of Evo Morales’ Movimiento al Socialismo (MAS) has shifted from past neo-liberal policies to giving the state a more relevant role in the economy, nationalized the hydrocarbons sector, increased transfer payments to help a vast segment of the population living in poverty, and passed a new constitution. Since the crisis erupted Bolivia has enjoyed a period of high commodity prices, which has provided the Morales administration large financial inflows from the natural resources companies controlled by the state. This funding allowed the government to implement an ambitious expansionary fiscal policy based on large government spending, particularly on social programs. At the same time, Bolivia has managed to diversify its foreign trade partners reducing the dependence from foreign markets that were severely affected by the financial crisis.
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Ahmet Benlialper and Hasan Cömert

The aim of this chapter is to assess how the theory and practices of central banking have evolved in developing countries in response to the crisis of 2008_9. Our findings suggest that the recent experiences of both advanced countries and developing countries during and after the global economic crisis have exposed the problems within mainstream monetary theory. In response to the crisis, mainstream thinking has been revised considerably. In line with this, there is also a shift in central banking practices in developing world. As a result, central banks now have multiple goals and multiple tools in developing countries as well. Yet this shift is insufficient to trigger a major change in understanding and implementing monetary policy.
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Marcos Reis, Andre de Melo Modenesi and Rui Lyrio Modenesi

The Brazilian response to the subprime and euro crises was a progressive easing of the so called macroeconomic tripod, consisting of inflation targeting, a floating exchange rate with capital mobility, and a primary budget surplus, which was focused strictly on controlling inflation solely by counting on the interest rate. Macroeconomic policy became more flexible with the adoption of other economic and social goals, and a relevant set of instruments, especially countercyclical measures to boost demand, such as increasing public investment, tax cuts, subsidy grants and payroll tax exemptions. Inflation control was relaxed; the interest rate was lowered significantly and fiscal and other non-monetary tools were used for price stabilization. This chapter analyzes the impact of both crises in Brazil and examines the contagion channels and the government responses. It concludes that to deal with the crisis the economic policy needed to be changed, indicating that the golden years of the macroeconomic tripod are over.