Emerging Economies Were Not Particularly Hurt During the Great Recession of 2008-2009: What Are the Factors Identified That Explain the Resilience of These Economies?
In particular, EMEs now play an increasingly important role in international trade and financial flows, implying major shifts in the patterns of global linkages. These developments are likely to have wide-ranging implications for the structure of the global economy.
Another provision of the act requires large financial institutions to create “living wills,” which are detailed plans laying out how the institution could be resolved under US bankruptcy code without jeopardizing the rest of the financial system or requiring government support. Like the Great Depression of the 1930s and the Great Inflation of the 1970s, the financial crisis of 2008 and the ensuing recession are vital areas of study for economists and policymakers. While it may be many years before the causes and consequences of these events are fully understood, the effort to untangle them is an important opportunity for the Federal Reserve and other agencies to learn lessons that can inform future policy.
However when we look at collapses in GDP growth, the evidence suggests that, on impact, the crisis hit emerging and advanced countries equally hard. This approach has been taken by several influential studies (Blanchard et al. 2010; Claessens et al. 2010; Lane and Milesi-Ferretti 2010). In a recent paper (Didier et al. 2011), we argue that emerging countries suffered declines in real GDP growth comparable to, or even larger than, those in advanced countries. Moreover countries rebounded in the aftermath mostly according to how deep their collapse had been. In particular, we identify a non-linearity between the collapse in GDP growth and GDP per capita. The largest growth collapses tended to occur in the wealthier emerging countries and poorer high-income economies. In an important sense, this is good news. Unlike earlier crises, where emerging nations often fared much worse than developed nations, this time the shock had similar effects. Moreover, emerging nations were able to use a larger set of policy tools. There is, of course, heterogeneity among emerging nations. Eastern Europe and Central Asia fared the worst. In the case of low-income countries, their relatively lower degree of trade and financial openness helped shelter them from the worst declines in output growth.
Blanchard, O, H Faruqee, and M Das (2010), “The Initial Impact of the Crisis on Emerging Market Countries”, Brookings Papers on Economic Activity,Spring:263-307.
Claessens, S, G Dell’Ariccia, D Igan, and L Laeven (2010), “Cross‐Country Experiences and Policy Implications from the Global Financial Crisis”, Economic Policy,62:267-293.
Didier, T, C Hevia, and S Schmukler (2011), “How Resilient Were Emerging Economies to the Global Economic Crisis?”, World Bank Policy Research Working Paper 5637.
Frankel, J, and G Saravelos (2010), “Are Leading Indicators of Financial Crises Useful for Assessing Country Vulnerability? Evidence from the 2008–09 Global Crisis”, NBER Working Paper 16047, June.
Gourinchas, PO, and M Obstfeld (2011), “Stories of the Twentieth Century for the Twenty-First”, American Economic Association Annual Meeting, Denver, CO.