Post-Crisis Growth in Developing Countries: A Special Report of the Commission on Growth and Development on the Implications of the 2008 Financial Crisis (World Bank Publications)

"The 2008 financial crisis has raised a number of questions about the best strategy for achieving sustained growth and poverty reduction in developing countries, foremost among them whether the failure of the financial system also signifies the broader failure of market-oriented capitalist systems. The Growth Commission looks at this issue in its new report - Post-Crisis Growth in Developing Countries. It believes that the crisis was not a failure of market-oriented systems and that an outward-looking strategy, as suggested in the original Growth Report (published in May 2008), remains broadly valid. The following questions are discussed in this special report: How has the economic landscape changed in the wake of the financial crisis of 2008? What factors contributed to the onset of the financial crisis and its transmission from advanced to developing countries? Should the crisis be interpreted as a failure of financial-sector regulation or as a broader failure of market-based systems? What effects will the financial crisis have on the prospects for economic growth in developing countries? How will the crisis impact the formulation of developing country growth strategies going forward? What is the outlook for free trade and a growth model that capitalizes on the global economy? How do actions by the advanced economies in response to the crisis affect the choices of policymakers in the developing world? What is the appropriate role of government in the post-crisis economy? How will the lessons of the crisis affect strategies for financial-sector development in developing countries? What are the prospects for improved international oversight of global finance and cross-border financial flows?" The 2008 financial crisis has raised a number of questions about the best strategy for achieving sustained growth and poverty reduction in developing countries, foremost among them whether the failure of the financial system also signifies the broader failure of market-oriented capitalist systems. The Growth Commission believes that the crisis was not a failure of market-oriented systems and that an outward-looking strategy, as suggested in the original Growth Report (published in May 2008), remains broadly valid. The following questions are discussed in this special report: - How has the economic landscape changed in the wake of the financial crisis of 2008? - What factors contributed to the onset of the financial crisis and its transmission from advanced to developing countries? - Should the crisis be interpreted as a failure of financial-sector regulation or as a broader failure of market-based systems? - What effects will the financial crisis have on the prospects for economic growth in developing countries? - How will the crisis impact the formulation of developing country growth strategies going forward? - What is the outlook for free trade and a growth model that capitalizes on the global economy? - How do actions by the advanced economies in response to the crisis affect the choices of policy makers in the developing world? - What is the appropriate role of government in the post-crisis economy? - How will the lessons of the crisis affect strategies for financial-sector development in developing countries? - What are the prospects for improved international oversight of global finance and cross-border financial flows?

In May 2008, the Commission released the growth report: strategies for sustained growth and inclusive development. At that time, the financial systems of the United States and Europe were under stress. Commodity prices were also spiking, posing particular difficulties for developing countries because of the impact on the poor and on potential future inflation. But no one foresaw the full magnitude of the crisis that erupted in the fall of 2008, more than a year ago. The crisis was a destructive malfunction of the financial sectors of the advanced economies, which spread rapidly to the real economy and to the rest of the globe. Even countries far from the source of the crisis had to cope with capital volatility, tight credit, and rapidly falling trade. At the request of several members of the Commission, Commission held a workshop on the crisis and its implications for developing countries. Commission followed standard procedure of asking for help and insight from a distinguished group of scholars, analysts, and practitioners. This report is an outgrowth of that process. It is an attempt to look at the crisis and its aftermath from the point of view of developing countries. Commission wanted to assess the impact of these events, and determine if the growth strategies recommended needed major revision, or some adaptive fine tuning. Commission also wanted to think more carefully about resilience, and what it might mean for successful sustained growth. The report that follows is a summary of thinking on these and related questions.

9780821381656......Page 1 Contents......Page 4 Members of the Commission on Growth and Development......Page 2 Workshop Participants......Page 6 Preface......Page 10 Abbreviations......Page 14 PART 1 Introduction......Page 16 The Purpose of This Special Report......Page 17 PART 2 The Crisis......Page 20 Response to the Crisis......Page 22 The Post-Crisis Global Economy......Page 23 What Failed and What Did Not Fail?......Page 30 Openness......Page 32 Strategies and Outcomes......Page 33 Global Imbalances: Protectionism and Fiscal Deficits......Page 36 Deficit Spending, Sustainability, and the U.S. Dollar as a Reserve Currency......Page 38 Financial Sector Development......Page 39 PART 5 Resilience......Page 44 Countercyclical Policies......Page 45 Distributional Issues......Page 46 International Agenda......Page 47 The Poorer Developing Countries......Page 48 Bad Ideas: Part 2......Page 49 Concluding Thoughts......Page 52 1. The Heart Attack......Page 54 2. Underlying Condition for the Crisis......Page 67 3. The Emergency Room......Page 76 4. The Real Economy Impact......Page 80 5. The Crises of 1929 and 2008......Page 88 This Special Report By The Commission On Growth And Development Assesses The 2008 Financial Crisis' Longer Term Impact On Developing Countries, Explains How Developing Countries Can Make Themselves More Resilient In The Face Of Such Blows, And Examines What International Institutions And Forums Can Do To Help. Introduction The crisis Questioning the growth strategies Openness and financial development Resilience Concluding thoughts.