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The Financial and Economic Crisis of 2008-2009 and Developing Countries

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The Financial and Economic Crisis of 2008-2009 and Developing Countries THE FINANCIAL AND ECONOMIC CRISIS OF 2008-2009 AND DEVELOPING COUNTRIES Edited by Sebastian Dullien Detlef J. Kotte Alejandro Márquez Jan Priewe UNITED NATIONS New York and Geneva, December 2010 ii Note Symbols of United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. The views expressed in this book are those of the authors and do not necessarily reflect the views of the UNCTAD secretariat. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. Material in this publication may be freely quoted; acknowl edgement, however, is requested (including reference to the document number). It would be appreciated if a copy of the publication containing the quotation were sent to the Publications Assistant, Division on Globalization and Development Strategies, UNCTAD, Palais des Nations, CH-1211 Geneva 10. UNCTAD/GDS/MDP/2010/1 UNITeD NatioNS PUblicatioN Sales No. e.11.II.D.11 ISbN 978-92-1-112818-5 Copyright © United Nations, 2010 All rights reserved THE FINANCIAL AND ECONOMIC CRISIS O F 2008-2009 AND DEVELOPING COUN T RIES iii CONTENTS Abbreviations and acronyms ................................................................................xi About the authors ...............................................................................................xiii Introduction Sebastian Dullien, Detlef J. Kotte, Alejandro Márquez and Jan Priewe ..............1 THE CRISIs – TRANSMISSION, IMPACT AND SPECIAL FEATURES What Went Wrong? Alternative Interpretations of the Global Financial Crisis Jan Priewe ..........................................................................................................17 Introduction: What went wrong? ........................................................................18 I. Prevailing explanations of the causes of the crisis ....................................21 A. Various explanations focusing on financial markets ............................21 b. Alan Greenspan’s view ........................................................................25 C. Beyond the proximate causes ...............................................................28 II. The role of global imbalances ....................................................................30 III. The “new Triffin dilemma” ........................................................................39 IV. Finance-led capitalism and unequal income distribution ..........................43 V. Conclusions ...............................................................................................46 Notes ...................................................................................................................48 References ...........................................................................................................50 The Emerging-market Economies in the Face of the Global Financial Crisis Daniela Magalhães Prates and Marcos Antonio Macedo Cintra ......................53 Introduction .........................................................................................................54 I. Proposed agenda for improving the governance of the international financial system ..............................................................55 II. The implications of the crisis for emerging-market economies .................57 III. Conclusion .................................................................................................70 Notes ...................................................................................................................71 References ...........................................................................................................71 iv The Financialization of Commodity Markets and Commodity Price Volatility Jörg Mayer ..........................................................................................................73 Introduction .........................................................................................................74 I. The increasing presence of financial investors in commodity markets ...............................................................................75 A. Primary commodities as an asset class .................................................75 b. Financial investment in commodity indexes ........................................77 II. The impact of financialization on commodity price developments ...........82 III. Commodity price volatility ........................................................................85 A. The origin of commodity price volatility .............................................85 b. Recent developments in commodity price volatility ............................85 C. Financial investment and commodity price volatility ..........................90 IV. Conclusions ................................................................................................92 Notes ...................................................................................................................95 References ...........................................................................................................97 Risk Factors in International Financial Crises: Early Lessons from the 2008-2009 Turmoil Sebastian Dullien ................................................................................................99 Introduction .........................................................................................................99 I. Empirical analysis of the crisis ................................................................100 A. Descriptive statistics ...........................................................................102 b. Econometric estimates .......................................................................106 C. Summing up the empirical evidence .................................................. 110 II. Tentative explanations and conclusions ................................................... 111 Notes ................................................................................................................. 114 References ......................................................................................................... 115 v The crisis – counTRY AND REGIONAL STUDIES China’s Economy in the Global Economic Crisis: Impact and Policy Responses Laike Yang and Cornelius Huizenga ................................................................. 119 Introduction .......................................................................................................120 I. Impacts of the global economic crisis on the Chinese economy .............121 A. Relatively small impact on Chinese financial institutions .................121 B. Impact on economic growth ...............................................................122 C. Impact on employment .......................................................................124 D. Impact on FDI inflows .......................................................................127 E. Inflation ..............................................................................................128 F. Impact on China’s foreign trade .........................................................128 II. Responses of the Chinese Government and their outcomes ....................133 A. Responses of the Chinese Government to the global crisis ...............133 B. Outcomes of China’s expansionary policies and stimulus package ........137 III. Concluding remarks and policy proposals ...............................................140 Notes .................................................................................................................145 References .........................................................................................................146 Sustaining Growth in a Period of Global Downturn: The Case of India Abhijit Sen Gupta ..............................................................................................149 Introduction .......................................................................................................149 I. India’s growth slowdown prior to the financial and economic crisis .............151 II. Transmission and impact of the crisis ......................................................155 III. Policy response to the crisis .....................................................................162 IV. Medium-term policy challenges ..............................................................165 V. Conclusion ...............................................................................................168 Notes .................................................................................................................169 References .........................................................................................................169 vi Brazil and India in the Global Economic Crisis: Immediate Impacts and Economic Policy Responses André Nassif ......................................................................................................171 Introduction .......................................................................................................172 I. Business cycle fluctuations, depressions and appropriate economic
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