OECD Development Centre Working Papers

The OECD Development Centre links OECD members with developing and emerging economies and fosters debate and discussion to seek creative policy solutions to emerging global issues and development challenges. This series of working papers is intended to disseminate the OECD Development Centre’s research findings rapidly among specialists in the field concerned. These papers are generally available in the original English or French, with a summary in the other language.

English, French

Taking Stock of the Credit Crunch

Implications for Development Finance and Global Governance

This paper examines how the different forms of development finance for low-income countries are likely to be affected by the global financial crisis, principally through reductions in remittances, aid flows and FDI. It argues that the channels of transmission of the crisis for particular countries will not necessarily be obvious ones. Despite initiatives to lower the debt burden for low-income countries over recent years, the crisis will also have consequences for the external debt sustainability as they struggle with falling export revenues, currency depreciations and rising fiscal deficits. In other senses, however, the crisis represents an opportunity for reform. With regard to aid, for instance, it is suggested that a hard-budget constraint on aid budgets may help focus attention on increasing aid efficiency. Moreover, it is argued that the prospects for the developing world depend not only on how the financial crisis evolves in the OECD countries, but also increasingly on how growth holds up in the rest of the developing world. In this sense, the paper discusses the possibility that South-South linkages are strengthened in the wake of this crisis. Finally, the paper looks at the global governance issues that arise from the crisis. In many areas, existing policy frameworks have been discredited by the crisis. It is argued that future reforms in global governance and regulatory structures need to take into account more fully the developing world to be effective.


Keywords: financial crisis, international finance, global governance, South-South linkages, development finance
JEL: O1: Economic Development, Innovation, Technological Change, and Growth / Economic Development; F5: International Economics / International Relations, National Security, and International Political Economy; O2: Economic Development, Innovation, Technological Change, and Growth / Development Planning and Policy; F3: International Economics / International Finance
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