Developing-nation economists' view of the crisis: GDN 2009 Survey

Posted by on 11 February 2009

Discussions on the economic slowdown so far have focused mainly on the consequences of this slowdown for the developed world and how government’s in the developed world have responded to the challenges. Similarly, the available commentary on the current situation mainly comes from economists in developed countries.

In order to provide a more global view on the current situation, I surveyed the opinion of participants of the Global Development Network’s 10th Annual conference titled ‘Natural Resources and Development’, which took place in Kuwait on February 3-5.

A total of 207 participants filled in a questionnaire, a response rate of over 50%. Sixty-four countries are represented in the sample, with 61 respondents residing in developed countries and 146 in developing countries. Ninety-two percent of the respondents are active researchers, most of them with a PHD as highest degree, and 72% consider themselves economist.

Findings

A first important finding is that most of those residing in developing countries do not expect a recession in their country. The average of the respondents’ forecasts for GDP growth is 3.23% for developing countries, against -0.68% for developed countries. Only 41 respondents forecast a negative growth for their country (out of 183 who answered this question). Interestingly, 31 of these 41 were residents of developed countries – 60% of those residing in developed countries think their country will have negative growth, while only 7.6% of those who reside in developing countries feel this way.

A simple regression of the growth forecast showed that residing in a developed country decreases the forecast by about 4 percentage points, that being an economist increases the forecast by about 1 percentage point and that males are somewhat more pessimistic.

The median respondent expects the bottom of the economic slowdown (in his/her country) to be reached in Q1 2010, with almost 20% of respondents thinking it will be at least until 2011 before the bottom will be reached (see figure 1 in the full document).Researchers from developed countries are slightly more optimistic about the timing of the bottom of the economic slowdown (median at Q4 2009) than researchers from developing countries (median Q1 2010), which is consistent with the idea that the economies of developing countries follow the economies of the developed countries with a lag. An ordered probit regression analysis using the same explanatory variables as above did not find any significant factors, however, even though the dummy for developed countries was closest to being significant (i.e. significant at the 17% significance level).

While most respondents support government intervention in case of an economic slowdown, many of them are not happy about how their government has handled the slowdown so far (see figure 2 below) – of those expressing an opinion, two out of three were less than satisfied. Interestingly, respondents who reside in developing countries are less satisfied with how their government handled the situation that those residing in developed countries (69% versus 53% who are less than satisfied).

About 84% of the respondents think that a mix of policies is an effective or very effective way to counter the economic slowdown in their country. Specific policies by themselves are thought to be less effective, with fiscal policy being (on average) thought more often effective or very effective, compared to structural measures, and even more so compared to monetary policy (see figure 3 below). Comparing developed to developing countries, a regression analysis shows more support for structural policy interventions among respondents residing in developing countries.

Respondents were also given a choice between 3 policy levels for a policy reaction – country level, regional level and global level. Only about a third of respondents thinks that the best level for a policy reaction is at the level of the country – most respondents, however, prefer a reaction at a higher level. Regression analysis further showed that residents of developed countries, economists and males are more likely to opt for a policy reaction at a ‘higher’ level.

Conclusion

The 2009 GDN survey highlights how the current economic slowdown expresses itself in different ways in different parts of the world, how across developed and developing countries, expectations differ, preferred policies differ and preferred policy levels differ. Policy makers thus should be reminded that no one-size-fits-all policy is available, and hence, be careful when importing or exporting specific policies.

For a full version of the paper go to www.gdnet.org/CMS/getFile.php?id=gdn_2009_survey_results