We show that the credit crisis of OECD countries has a negative impact
on the growth of the world economy according to an error correction
model including China and Australia. 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 thirteen equations for thirteen variables that allows for highly
non-linear baseline simulations for these open economies. Then we
analyze the effects of transitional 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 until 2013
with overshooting for China and Australia, the level of the GDP per
capita shows permanent effects, which are positive only for China. In
the poor countries, investment, remittances, savings, tax revenues,
public expenditure on education, all as a share of GDP as well as
literacy and the GDP per capita, are reduced compared to the baseline
until 2087 where our analysis ends. Investment, emigration and labour
force growth start returning to baseline values between 2013 and 2017.
GDP per capita and tax revenues start returning to baseline around 2040.
Education variables do not return to baseline without additional effort.
Significantly positive short-run effects (the lagged growth rates) show
that China has an impact on Australia, which has an impact on the OECD,
which in turn affects the rest of the world. ROW has a significantly
positive feedback effect on China.
JEL class.: F22, 24; G01, O15, J61.
Keywords: crisis; migration; remittances; accumulation; developing country growth.
UNU-MERIT Working Papers ISSN 1871-9872