The OECD Recession and Developing Country Trade: A Global Simulation Analysis

Abstract

International trade is one of the main channels through which the global financial crisis hits developing countries. The recession in the ‘global North’ triggered by the financial crisis and the resulting slowdown of growth in other major emerging economies will generate declines in demand for exports from developing countries, along with a reversal of the beneficial terms-of-trade trends that have favoured net exporters of primary commodities over the last few years. How these terms-of-trade effects affect economic performance and welfare in low-income countries depends on country-specific characteristics and require a differentiated analysis. We use a multi-region computable general equilibrium world trade model to gauge the impact of a slowdown in the Organization for Economic Co-operation and Development (OECD) on the rest of the world, with a particular focus on the least developed countries. The analysis aims to identify the characteristics of regions most vulnerable to adverse global crisis impacts via the trade channel.

Keywords: Global financial crisis, trade, computable general equilibrium, least developed countries

JEL Classification: D58, F17, F47