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The Global Financial Crisis: financial flows to developing countries set to fall by one quarter

Research reports

Written by Massimiliano Cali, Isabella Massa, Dirk Willem te Velde

The global financial crisis has spread around the world, has caused a considerable slowdown in most developed countries and has already affected financial markets and growth prospects in developing countries. The impact of the crisis on developing countries will affect four different types of international resource flows: private capital flows as foreign direct investment (FDI); portfolio flows and international lending; official flows such as development finance institutions; and capital and current transfers such as official development assistance and remittances. This report suggests that net financial flows to developing countries may fall by as much as $300 billion over 2007-2009, equivalent to a 25% drop. Some countries are more vulnerable than others and while the drop is serious, it should be seen in the light of record increases in financial flows in the five years leading up to 2007. The upcoming G20 crisis summit and Doha Conference need to consider ways to enhance international capital flows and promote ways to use a shrinking resource base more efficiently for development.

Massimiliano Cali, Isabella Massa, Dirk Willem te Velde