Global Shocks: Their Impact on Low-Income Countries

Lessons from the Global Financial Crisis

• First, for many individual LICs, 2009 was not extraordinarily calamitous; however, aggregate LIC output declined sharply because LICs were unusually synchronized.
• Second, the growth declines are on average well explained by the decline in export demand.
• Third, if the external environment facing LICs improves as forecast, their growth should rebound sharply.
• Finally, and contrary to received wisdom, there are few robust relationships between the cross-country growth variation and the policy and structural environment; the main exceptions are reserve coverage and labor-market flexibility.

The Working Paper is based on a presentation by the authors at the DIIS conference on the Global Financial Crisis and Developing Countries held in late 2010.