The global financial crisis and evolving recession in the developed countries and emerging economies will affect developing countries through two major channels: changes in international trade flows and world prices; and movements in global capital flows and foreign investment away from developing countries.
Through the first channel, the demand for exports from developing countries will fall and the beneficial terms-of-trade trends that have recently favoured net exporters of primary commodities will turn negative. The demand for oil will fall, lowering the world price, helping oil importers while hurting oil exporters. In addition to the trade channel, the crisis in financial institutions is causing movements in global capital flows and foreign investment away from developing countries, forcing them to make difficult macroeconomic adjustments. While both channels are potentially important, this briefing focuses on the first: changes in international trade flows and world prices.
Editors
