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The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact

Author/Editor: Berkmen, Pelin | Gelos, Gaston | Rennhack, Robert | Walsh, James P
Authorized for Distribution: December 1, 2009
Electronic Access: Free Full Text (PDF file size is 965KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We provide one of the first attempts at explaining the differences in the crisis impact across developing countries and emerging markets. Using cross-country regressions to explain the factors driving growth forecast revisions after the eruption of the global crisis, we find that a small set of variables explain a large share of the variation in growth revisions. Countries with more leveraged domestic financial systems and more rapid credit growth tended to suffer larger downward revisions to their growth outlooks. For emerging markets, this financial channel trumps the trade channel. For a broader set of developing countries, however, the trade channel seems to have mattered, with countries exporting more advanced manufacturing goods more affected than those exporting food. Exchange-rate flexibility clearly helped in buffering the impact of the shock. There is also some -weaker-evidence that countries with a stronger fiscal position prior to the crisis were hit less severely. We find little evidence for the importance of other policy variables.
 
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Series: Working Paper No. 09/280
Subject(s): Credit expansion | Cross country analysis | Developing countries | Economic forecasting | Economic growth | Emerging markets | Financial crisis | Financial systems | Fiscal policy | Flexible exchange rates | Global Financial Crisis 2008-2009 | Trade
Author's keyword(s): Global crisis | transmission of shocks | emerging markets | cross-country linkages
 
English  
    Published:   December 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009280   Pages:   19
    Price:   US$18.00
       
     
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