The Impact of the Credit Crisis on Poor Developing Countries: Growth, worker remittances, accumulation and migration
Thomas Ziesemer
#2009-026
The credit crisis of OECD countries has a negative impact on the growth
of the world economy according to a simple error correction model. This
causes negative growth effects in poor developing countries. The reduced
growth has a direct or indirect impact on the convergence issue, aid,
remittances, labour force growth, investment and savings, net foreign
debt, migration, tax revenues, public expenditure on education and
literacy. We estimate dynamic equations of all these variables using
dynamic panel data methods for a panel of countries with per capita
income below $1200 (2000). The estimated equations are then integrated
to a dynamic system of fourteen equations for fourteen variables that
allows for highly non-linear baseline simulations for these open
economies. Then we analyze the effects of shocks as predicted by the
international organizations for the OECD and world growth for 2008 and
2009. Whereas growth rates return to the baseline scenario very quickly,
the GDP per capita returns to its baseline level in OECD countries and
the world economy after some years but in poor developing countries it
remains below the baseline scenario for more than 200 years. This long
run blow to convergence leads to more remittances and emigration, a
lower labour force growth, higher shares of GDP for saving, tax
revenues, public expenditure on education and investment, and higher
literacy. However, all these stabilizing forces through remittances and
emigration cannot compensate the losses in levels of growth. Short and
medium run effects are driven by a return to baseline for OECD and world
GDP growth rates by the end of 2010, but for levels only 10 to 30 years
later. Therefore we first get 15 to 20 years of fewer remittances, tax
revenues, savings, public expenditure on education, literacy, and
investment, more emigration and lower labour force growth.
JEL class.: F22, 24; G01, O15, J61.
Keywords: crisis, migration, remittances, accumulation, growth.
UNU-MERIT Working Papers
ISSN 1871-9872