Global economic prospects and the developing world

Abstract

The Great Recession had strong though quite diverse effects on the developing and transition economies. One channel of transmission was through falling remittances, which impacted several, mostly small countries heavily dependent on remittances of migrants to the US, Western Europe and Russia; in contrast, remittances from the Gulf countries to South Asia and the Middle East did not experience a similar downward trend. The financial shock was severe, mainly for middle-income 'emerging' economies, but it was short, thanks to the largest Keynesian policies ever adopted in history, including those put in place by several major developing countries, and to the massive bailouts of financial institutions in industrial countries. The trade shock was also severe, longer lasting (its effects are still visible today) and affected all countries. In the developing world, high and mid-tech manufacturing exporters were hardest hit by the collapse of export volumes. In turn, energy and metal exporters were initially more affected by the collapse of commodity prices than agricultural producers. Dependence of many low-income countries on agricultural exports thus turned out to be a relative blessing under the circumstances. In a longer term perspective, however, real agricultural prices came back to levels below those of the 1970s, in sharp contrast to relatively high real oil and metal prices.