Economics at your fingertips  

The transmission mechanism of financial crisis to developing countries: why the 'global financial crisis' wasn't global

Jan Toporowski

Chapter 2 in Capital Movements and Corporate Dominance in Latin America, 2021, pp 24-37 from Edward Elgar Publishing

Abstract: Despite a large literature on the destabilising effects of capital account liberalisation, there is little analysis of how financial crisis is transmitted from financially advanced countries to developing countries. This is in large part because the usual direction of transmission is from the developing countries or emerging markets to the more advanced countries in which global financial centres are based. This chapter identifies three channels through which financial crisis has been transmitted to developing countries and emerging markets. These are a financial channel through illiquidity in the international monetary system, and hence in government and corporate balance sheets, causing debt crises; a monetary channel, when exchange rates change the value of external liabilities; and thirdly an export channel, if the value of exports falls below the value required to maintain production and service external debt. The chapter argues that because of developments in these three channels, unconventional measures of monetary policy ensured that the 2008 financial crisis had only minimal effects in developing countries and emerging markets. Capital controls are not an effective solution and the problem of managing capital flows to developing countries remains a challenge for international monetary policy.

Keywords: Development Studies; Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in Chapters from Edward Elgar Publishing
Bibliographic data for series maintained by Darrel McCalla ().

Page updated 2022-06-30
Handle: RePEc:elg:eechap:20026_2