The financial crisis in the developed countries did not initially caused effect as the crisis did not originate within their financial systems. It was even thought that the real economy in the developing countries would escape but, when demand fell in developed countries, volumes and prices of exports from developing countries declined. This initialled severe contraction of employment in the export industries of developing countries in turn has spread to other industries in these countries, causing economy wide declines in output and employment.

The extent of the effects of the global crisis on developing countries depends on the importance of exports and capital inflows in their economies.

For example, exports of goods and services average 22 percent of GDP in Latin America and the Caribbean, 26 percent in sub-Saharan, Africa 35 percent, in Eastern Europe and central Asia 40 percent and in East Asia almost 50 percent. For the large developing countries, exports as a proportion of GDP vary from 15 percent in Brazil to 23 percent for India, 28 percent for Turkey, 30 percent for South Africa, 31 percent for Indonesia, 32 percent for Mexico, 34 percent for Russia and 40 percent for China (Joseph P. Joyce 2013).

Exports from both China and South Korea have dropped, and although GDP growth remains positive in China, it is sharply negative in South Korea. Russia has been severely affected, with industrial output falling by more than 10 percent in the last quarter of 2008 and GDP posting a 27 percent year on year decline in the first quarter of 2009; Russia’s financial reserves have also declined substantially (Joseph P. Joyce (2013).

Countries that depend on exports of primary commodities other than oil have also been hit hard because of the sharp decline in prices of export commodities (Joseph P. Joyce 2013).

The increasing integration of world finance also means that the crisis is having a serious effect, both directly and indirectly, on investment in developing countries (Jeffrey Harrod and Robert O’Brien 2002).

Not only is foreign direct investment declining, but foreign financial institutions are withdrawing their in-vestments in developing countries’ stock exchanges and repatriating the proceeds, resulting in sharp declines, often of more than 50 percent, in stock prices and large devaluations, often of more than 25 percent, in their currencies. The drop in stock prices further hurts investment in developing countries; the effect of currency devaluation, however, depends on the share of imported inputs in production or in the consumption basket of workers (Jeffrey Harrod and Robert O’Brien 2002).


Jeffrey Harrod and Robert O’Brien (2002) Global unions? ; Theory and strategies of organized labour in the global political economy; London: Routledge.

Joseph P. Joyce (2013) The IMF and global financial crises: Phoenix rising? New York: Cambridge University Press.

Joseph P. Joyce. (2013) The IMF and global financial crises; Phoenix rising? (Cambridge: Cambridge University Press) in the review of international organizations. VOL 8; NUMBER 3; 2013, pp.415-418 — SPRINGER SCIENCE + BUSINESS MEDIA – 2013

By Alex


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