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April, 2009Working Paper number
 
53
Stephany Griffith-Jones
Initiative for Policy Dialogue,Columbia University
 José Antonio Ocampo
School of International and Public Affairs,Columbia University
THE FINANCIAL CRISISAND ITS IMPACT ONDEVELOPING COUNTRIES
International
Centre
for Inclusive Growth
 
Copyright©2009International Policy Centre for Inclusive GrowthUnited Nations Development Programme
The International Policy Centre for Inclusive Growth is jointly supported 
 
by the Poverty Practice,Bureau for Development Policy, UNDP and the Government of Brazil.
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International Policy Centre for Inclusive Growth (IPC - IG)
Poverty Practice, Bureau for Development Policy, UNDPEsplanada dos Ministérios, Bloco O, 7º andar70052-900 Brasilia, DF - Brazil Telephone: +55 61 2105 5000E-mail:ipc@ipc-undp.org
 URL:www.ipc-undp.org The International Policy Centre for Inclusive Growth disseminates the findings of its work inprogress to encourage the exchange of ideas about development issues. The papers aresigned by the authors and should be cited accordingly. The findings, interpretations, andconclusions that they express are those of the authors and not necessarily those of theUnited Nations Development Programme or the Government of Brazil.
Working Papers
are available online atwww.ipc-undp.org and subscriptions can be requested by email toipc@ipc-undp.orgPrint ISSN: 1812-108X
 
 
THE FINANCIAL CRISIS AND ITS IMPACTON DEVELOPING COUNTRIES
Stephany Griffith-Jones
∗
and José Antonio Ocampo
∗∗
 
ABSTRACT
 This working paper has been commissioned by the Poverty Group, Bureau for DevelopmentPolicy at UNDP, to identify the transmission mechanisms of the financial crisis from developedto developing countries and to provide broad policy recommendations at the national, globaland regional level. The paper identifies three mechanisms that play a key role in spreading theconsequences of the financial crisis to the developing world: remittances, capital flows andtrade. The policy responses take MDG achievement and poverty reduction as the central policyconcern. The paper indicates that a fair number of countries have policy space to protectvulnerable groups in the short run as well as to undertake investments to build resilience andreach these goals in the longer term. Other countries will need additional developmentassistance to protect development achievements. The authors point to a number of factorsthat need to be taken into account in determining what mix of policies to deploy including themacroeconomic, fiscal and policy stance of countries and their dynamics. The paper alsoproposes far-reaching reforms to address the global financial crisis, which would help to putthe global macroeconomic, fiscal and financial coordination mechanisms on a firmer footing.
EXECUTIVE SUMMARY
 The current economic and financial crisis was driven by the reversal of the three positive‘shocks’ that developing countries experienced during the recent boom period: exceptionalfinancing, high commodity prices and, for a significant number of countries, large flows of remittances. The initial trigger that contributed to the reversals of these trends was the impactof the bursting of the U.S. housing bubble. However, it was the reversal in commodity pricesin mid-2008 and, particularly, the severe world financial crisis that started in September 2008that led to significant reversal of favorable global conditions for developing countries. The emerging recession in the United States and other developed countries furthermultiplied the negative impact of the crisis for developing countries.
∗
Executive Director of the Initiative for Policy Dialogue at Columbia University.She can be contacted at: <sgj2108@columbia.edu>.
∗∗
Professor in the School of International and Public Affairs; Fellow of the Committee on Global Thought atColumbia University and together with Joseph Stiglitz, Co-President of the Initiative for Policy Dialogue.He can be contacted at: < jao2128@columbia.edu>.
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