Economics of G20. Группа авторов

       Chapter 5

       The 2008–2009 Crisis and Developing Countries

      Manmohan Agarwal

       Centre for Development Studies Thiruvananthapuram, India [email protected]

      Adrita Banerjee

       Centre for Economic Studies and Planning Jawaharlal Nehru University, New Delhi, India [email protected]

       Abstract

      This chapter analyses the effect of the 2008 crisis on the economic performance of a sample of large emerging countries. First, these countries are grouped in three regions — Africa, Asia and Latin America (LA). The broad trends in the countries of the three regions are similar. Growth rate of GDP per capita fell in the years 2008–2009 immediately after the financial crisis but recovered subsequently. The share of exports of goods and services in GDP increased initially in all three regions. Later the share fell in LA and Asia but continued to increase in Sub­Saharan Africa (SSA).

      Gross fixed capital formation (GFCF) increased in 2008–2009 and later it decreased for LA and SSA while it continued to increase in Asia. The investment in Asian countries was financed by higher savings rates, and thus they maintained a sustainable current account (CA). The African countries with higher CA deficits than seen historically and Latin American countries which saw a fall in investment rates and a deterioration in the CA still face major problems of adjustment.

      The chapter then analyses the performance of individual countries. This presents a mixed picture. Only three countries have a significantly different growth rate. It seems that these large countries have weathered the crisis without a significantly lower growth and the brunt of the adjustment burden seems to have fallen on smaller countries. By and large, the countries have a higher investment ratio, a higher money growth and a lower interest rate, which helped to maintain the investment rate.

      Analysis using Pearson’s rank correlation as well as correlation analysis suggests that countries with good export performance grew faster before the crisis and their better export performance enabled them to build up reserves. Their better export performance continued after the crisis, which along with the reserves accumulated from the past export performance enabled these countries to better tackle the crisis and maintain high rates of investment and growth.

       Introduction

      In Chapter 1, we analysed how developing countries had fared over the last five decades. In particular, we found that developing countries have grown faster over the period 1965–2015 than the developed countries so that overall there has been a catch up. This period of catch up was interrupted during the years 1983–1990, as all income categories of developing countries, low income, lower middle income and upper middle income, grew slower than the world average. The pace of catch up has been particularly rapid since the turn of the century as the gap between the growth rates of developing countries and the world was large in the period 2001–2007. This period 2001–2007, before the onset of the financial crisis, was a golden period for growth in developing countries in comparison with the 1980s and 1990s. Growth in developing countries accelerated during this period despite a significant slowdown in growth in high­income countries.¹

      However, though developing countries as a whole grew faster than the world, low-income countries grew slower than the world even in this period (2001–2007) of rapid growth. It is only since the crisis of 2008 that low-income countries have grown faster than the world. Another feature of growth in developing countries is that the low-income countries have consistently grown slower than the lower middle-income countries, which in turn have grown slower than the upper middle-income countries except during the period 1983–1990. Thus, the gap among developing countries has grown and there is no convergence.

      Growth in developing countries which initially fell during 2008–2009, immediately after the onset of the crisis, fell further in the subsequent period 2010–2015. The deceleration of growth in the later period affected the low-income countries also.

      Region-wise, the Asian regions have usually grown faster than the other regions. The two Asian regions grew faster than the rich countries even during the years 1983–1990 when developing countries were generally falling behind the richer countries. The pace of growth in the Sub-Saharan Africa (SSA) region has picked up since the turn of the century. Latin America and the Caribbean (LAC) countries have experienced a substantial decline in their growth rate, which has persisted for almost half a century. The growth in the region declined from 3.8% in the period 1965–73 to 1.2% for almost the next half century. Furthermore, there was no convergence among the developing countries in the periods 2001–2007 and 2011–2015 as the ranking of the regions by growth rates is almost the same.

      An important positive feature of recent developments in developing countries is that the share of gross fixed capital formation (GFCF) in GDP has increased in all the regions so that it is higher after the crisis than it was before despite the growth slowdown; and these investments have been financed largely by high rates of domestic savings (Agarwal and Chakravarty, 2017).

      Another significant feature of the performance of developing countries is that the share of exports of goods and services in GDP (XG&S) has increased over the years for all the developing country regions. Since the 1980s, XG&S starting from a low level has increased rapidly in Asia, both East and South. Since the financial crisis, this share has tended to decline in all the regions except South Asia. The decline has been particularly sharp in East Asia and Pacific (EAP). The decline is largest in the region which had the highest ratio pre-crisis and much less in regions which had low export to GDP ratios. For this indicator, we seem to have convergence among the regions.

      In this chapter, we explore the effect of the 2008 crisis on the following 22 large developing countries for which comparable data are available: