Trouble for the U.S. spells more trouble for others
Bad times here: bad times there. That seems to be the message of this new report from the Center for Global Development.
When the US experiences economic crisis — which it clearly is at the moment — the whole world is affected. Ironically, tragically, the people likely to suffer most probably have nothing to do with the problem and no chance at input on the solution. This is so often the case in our interconnected world.
Here’s an overview from Liliana Rojas-Suarez:
For many developing countries, the U.S. credit crisis will mean slower growth and rising inequality. The effects will be protracted, and not all will show up at the same time. And the nature and degree of impact will vary widely. Some countries, notably those with extensive foreign exchange reserves and strong fiscal positions, will be much better able to cope than others. But overall the crisis is very bad news for developing countries and especially for the poor.
During the first stage, impacts will be felt through two channels. First, lower growth in the industrial countries will mean less demand for developing countries’ exports, both manufactured goods and most commodities (gold will be a notable exception). A few developing countries are growing based on domestic demand but many are growing based on exports, and for them sagging rich-world demand will be a problem.
The second channel will be a reduction in capital inflows to developing countries. Because the U.S. crisis has created a global credit crunch, investors are becoming more risk averse and thus less willing to invest in developing countries.
Here are some other articles from CGD researchers:
- Poor in Developing Countries are Victims of Our Mistakes by Nancy Birdsall
- Thoughts on the Financial Crisis and the Other Kind of Contagion by Ruth Levine
- If Foreign Aid Contracts, AIDS Treatment Jobs are a Safe Bet by Mead Over
- Middle Income and Emerging Markets May Be Most at Risk by Rachel Nugent
- Crisis? Not If We Take a Long View by Michael Clemens
- Microfinance Likely to Weather the Storm by David Roodman
- Crisis a Set Back for Accountability and Good Governance in Developing World by Vijaya Ramachandran
- In the Long Run We Are All Dead, But in the Meantime, Financial Crises Take a Heavy Toll by Nora C. Lustig
- Poor People Will Get Hurt And Confidence in the Market Will Fall by Peter Timmer