FRAGILE COUNTRIES AND THE 2008-2009 CRISIS

Franklin Allen and Giorgia Giovannetti
Authors registered in the RePEc Author Service: Giorgia Giovannetti ()

No 2010/13, RSCAS Working Papers from European University Institute

Abstract: This paper analyses the channels through which the economic and financial crisis of 2008-2009 is transmitted to fragile countries in Sub-Saharan Africa. Trade stands out as the main direct channel, even though intra-Africa remittances play a relevant role, given that most migrants in Sub-Saharan Africa fragile countries cannot afford the cost of mi-grating to Europe or to the United States and stay close, remaining in the continent. Whether reduced aid flows also act as a crisis transmission channel remains an open question, even though preliminary estimates suggest that, at least in the medium run, OECD countries are likely to lower aid, with potentially very damaging effects on fragile countries. The paper also shows that fragile countries are characterised by very low re-silience and capacity to cope with shocks. It concludes, by highlighting how Sub-Saharan Africa fragile countries' policymakers' room for manoeuver is limited in periods of crisis because of low fiscal space and limited institutional capacity. It advocates that the right response to the crisis would be to mobilise domestic resources, although this will require functional institutions able to offset the potential trade-offs between adverse short-term shocks and a long-term perspective.

Keywords: financial crisis; Sub Saharan Africa; real transmission channels. JEL Classification F0 O1. (search for similar items in EconPapers)
Date: 2010-01-29
New Economics Papers: this item is included in nep-afr
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: FRAGILE COUNTRIES AND THE 2008-2009 CRISIS (2010)
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