Recessions in developing and developing countries

This post could be called SSA speaks to the IMF part 2, since it discusses briefly the South African bank governor's comments (mentioned in my last post) on the chance of recession in developing countries. Some of the risks he identified are experienced by developed countries too, such as balance of trade shocks from oil price hikes and a collapse in global demand for goods. Other risks, such as fluctuations in aid flows and droughts are more specific in their impact.

The effects of recessions similarly have shared and distinct features between the two regions. A point of difference which works in favour of developing countries is that an economic downturn, at least in the early stages, can mark a substantial slowdown in accumulation of capital goods, physical and technological. In developing countries, although physical capital accumulation may slow, still quite fast technological capital accumulation may continue for utilisation during a subsequent economic upturn. The point of difference is that intellectual capital transfers from developed countries to developing countries can continue for an extent even during a recession. So a downturn may be viewed as growth deferred, rather than lost.

The observation above does not cover all forms of deskilling and disaccumulation during a recession, and these may offset the potential for growth which builds up during a downturn.