Introduction to The Great Recession and Developing Countries: Economic Impact and Growth Prospects

 

Introduction to The Great Recession and Developing Countries: Economic Impact and Growth Prospects

Otaviano Canuto and Justin Yifu Lin

While globalization has been a powerful engine of economic growth over the past three decades, it has also posed new problems and challenges, especially for international economic policy coordination. In the past decade, the large and rapid increases in trade, remittances, and international financial flows across borders have been a strong incentive for economic growth, not only in East and South Asia but also in Latin America and Sub-Saharan Africa. And rapid and sustained economic growth in several low- and middle-income economies has been steadily altering the economic weights of different regions in the world economy. Since the early 1980s, several international crises have revealed new risks associated with large international capital flows, economic booms(Reinhart and Rogoff 2010a), sudden stops  (Calvo, Izquierdo, and Mejia(2004), and economic busts. The debt crisis in Latin America in the1980s, the Mexico balance of payments crisis of 1994, the East Asia crisis of 1997, and the Russian Federation crisis of 1998 all underscore the impact of capital flows. Short-term capital inflows  have supported investment and accelerated economic growth, but they have also posed problems for exchange rate and aggregate demand management at the country level. Sharp short-term outflows , in contrast, pose challenges for economic stability at the global-economy level. 
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