Differential Impact

The global financial crisis that originated in the advanced economies dealt a blow to growth in the rest of the world during 2008-2009. Some countries, however, fared better than others. To examine why some countries did better than others, the authors focused on revisions in gross domestic product (GDP) growth forecasts before and after the crisis for a sample of 40 emerging market countries and for a larger sample of 126 developing countries (which included emerging markets). The results suggest that, if the countries in the most leveraged quartile of the sample (with average leverage of 185% of GDP) had had the same leverage ratios as the countries in the least leveraged quartile (83%), their growth revisions would have been, on average, 4.1 percentage points smaller. Clearly trade finance, which declined sharply at the end of 2008, was a financial channel that affected nearly all economies -- advanced, emerging market, and developing.