GLOBAL FINANCIAL AND ECONOMIC CRISIS: EXPLORING THE RESILIENCE OF THE LEAST DEVELOPED COUNTRIES

Abstract

AbstractIt is often argued that strong macroeconomic fundamentals along with weak integration with international financial markets acted as major buffers for least developed countries (LDCs) against fallouts of the recent global financial and economic crisis. This paper examines the hypothesis that LDCs had strong macroeconomic fundamentals in the wake of the crisis by studying Impulse Response Functions (IRFs) of Gross Domestic Product per capita of the LDCs during the crisis. With the treatment of the crisis as a transmission of shocks and utilisation of IRFs, the paper finds substantial and rather persistent output and growth loss for LDCs because of fall in external demand and terms of trade shocks. With the forecast of the impacts of a potential ‘double‐dip’ recession on the LDCs by using Vector Autoregressive, the paper concludes that LDCs would require the greater part of the decade to recover which is lower than the earlier recovery period. Copyright © 2012 John Wiley & Sons, Ltd.