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In Chapter 1, we analysed how developing countries had fared over the last five decades. In particular, we found that developing countries have grown faster over the period 1965–2015 than the developed countries so that overall there has been a catch up. This period of catch up was interrupted during the years 1983–1990, as all income categories of developing countries, low income, lower middle income and upper middle income, grew slower than the world average. The pace of catch up has been particularly rapid since the turn of the century as the gap between the growth rates of developing countries and the world was large in the period 2001–2007. This period 2001–2007, before the onset of the financial crisis, was a golden period for growth in developing countries in comparison with the 1980s and 1990s. Growth in developing countries accelerated during this period despite a significant slowdown in growth in high­income countries.¹

However, though developing countries as a whole grew faster than the world, low-income countries grew slower than the world even in this period (2001–2007) of rapid growth. It is only since the crisis of 2008 that low-income countries have grown faster than the world. Another feature of growth in developing countries is that the low-income countries have consistently grown slower than the lower middle-income countries, which in turn have grown slower than the upper middle-income countries except during the period 1983–1990. Thus, the gap among developing countries has grown and there is no convergence.

Growth in developing countries which initially fell during 2008–2009, immediately after the onset of the crisis, fell further in the subsequent period 2010–2015. The deceleration of growth in the later period affected the low-income countries also.

Region-wise, the Asian regions have usually grown faster than the other regions. The two Asian regions grew faster than the rich countries even during the years 1983–1990 when developing countries were generally falling behind the richer countries. The pace of growth in the Sub-Saharan Africa (SSA) region has picked up since the turn of the century. Latin America and the Caribbean (LAC) countries have experienced a substantial decline in their growth rate, which has persisted for almost half a century. The growth in the region declined from 3.8% in the period 1965–73 to 1.2% for almost the next half century. Furthermore, there was no convergence among the developing countries in the periods 2001–2007 and 2011–2015 as the ranking of the regions by growth rates is almost the same.

An important positive feature of recent developments in developing countries is that the share of gross fixed capital formation (GFCF) in GDP has increased in all the regions so that it is higher after the crisis than it was before despite the growth slowdown; and these investments have been financed largely by high rates of domestic savings (Agarwal and Chakravarty, 2017).

Another significant feature of the performance of developing countries is that the share of exports of goods and services in GDP (XG&S) has increased over the years for all the developing country regions. Since the 1980s, XG&S starting from a low level has increased rapidly in Asia, both East and South. Since the financial crisis, this share has tended to decline in all the regions except South Asia. The decline has been particularly sharp in East Asia and Pacific (EAP). The decline is largest in the region which had the highest ratio pre-crisis and much less in regions which had low export to GDP ratios. For this indicator, we seem to have convergence among the regions.

In this chapter, we explore the effect of the 2008 crisis on the following 22 large developing countries for which comparable data are available:

Some of the major macroeconomic variables used in the analysis are GDP growth rate, GFCF as a share of GDP, XG&S as a share of GDP, current account balance (CAB) as a share of GDP, official exchange rate, foreign exchange reserves as a share of GDP, nominal interest rate, real interest rate and M1 money stock as a share of GDP.

Most of the data have been taken from the International Financial Statistics (IFS) Database of International Monetary Fund (IMF). The rest of the data have been downloaded from the World Bank Databank.