Emerging economies and the global financial crisis: Evidence from China and India

Abstract

Abstract The global financial crisis (GFC) spread from the US and the EU economies to the developing world. In this article, we seek to gain a better understanding of clear contexts, attendant mechanisms, and processes associated with the GFC in China and India. We identify and synthesize the available evidence on the size of the external shock, the cushioning effects, and responses associated with the GFC to propose a framework that enables us to analyze more deeply the antecedents and consequences of the GFC in these two economies. Because of differences in their economic, social, and political backgrounds, China and India have exhibited noteworthy differences in the impacts and responses to the GFC. The findings indicated that trade and investment linkages with the outside world and the degree of personal globalization affected the size of the external shock associated with the GFC. In China's case, a sound macroeconomic policy framework and the state's control on the economy provided a cushion effect, which acted as a buffer to protect the economy against the external shock. China's and India's responses to the GFC included a shift from export‐driven to domestic demand‐led growth and diversion and shift of economic links away from economies associated with the GFC. © 2011 Wiley Periodicals, Inc.

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