Question

Explain the causes and consequences of financial crises in development countries versus emerging countries? In which countries the consequences of financial crises are more severe and why?

Answer 1

The causes and consequences of financial crises in development countries versus emerging countries

Many countries have been facing financial crises since the early ages. As the years passed by countries like america, japan china , etc pulled out themselves from the financial cries.“The crisis and the developing countries”, discussed the possible impact of the global crisis on three fundamental aspects of the process of globalisation, namely migration, foreign direct investment and financial development in Africa.

Unemployment and Inflation and several indicators of indebtness like foriegn liabilities of banks point out towards the financial crises in the emerging countries.

In emerging market countries the vulnerability to crisis is exacerbated by situations involving large liabilities that permit sudden capital outflows. Increases in indebtedness followed the liberalization of capital flows and domestic financial sectors.

COUNSEQUENCES

• REDUCTION IN THE FINANCIAL FLOW-​ Factors like Foreign direct investment (FDI), trade credits and flows of remittances affected negatively during the current crisis. This reduces the financial flow within the country as well as outside the country.
• LOW EXPORT EARNINGS- International trade depends on short-term credit,The impact may be significant, given that most developing countries have been basing their economic growth in recent years on exports. Lower commodity prices, a reduction in demand for their goods from advanced economies and less tourism. Reduction in demand in export and trade credit will create pressure on the developing countries.
• REDUCTION IN DOMESTIC LENDING- Holding assets contaminated by subprime mortgages could negatively affect the financial crises in developing countries. Reduction in the stock market prices and and housing prices reduces the capital of banks which causes severe problems as they do not hold required amount of capital in cash.Reductions in bank lending will reduce investment, lower growth and increase unemployment.

Countries in which the consequences of financial crises are more severe

Chad, Eritrea, Somalia, South Sudan, Sudan, Zimbabwe,Afghanistan, Haiti, Tajikistan and Yemen and countries in sub-Saharan Africa such as Ghana, Zambia and the Central African Republic all the countries face severe financial crises since decades.

CAUSES

South Sudan has large oil reserves, which are exported through Sudan, but its production fell sharply with the eruption of civil war. Some vital commodities have become scarce, with motorists in zmbabve somalia etc spending a night in their cars in queues outside petrol stations, supermarkets rationing purchases or shutting entirely, and chemists unable to provide some basic medicines.

The unemployment rate in these countries have increases a lot in last years due to population growth. GDP of these countries is too low since low or no exports in done.

Escalating humanitarian crisis merge to reach a dangerous critical mass, all must agree on several priorities – alongside renewed efforts to bring peace and political stability: realistic planning based on a thorough new socio-economic assessment, currently absent; adequate aid and support for state policy implementation, especially to help an alarming rise in numbers of displaced and shelterless people; halting repatriation of Afghan refugees, especially from Europe and Pakistan; and boosting investment and above all job creation in the country.

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