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Economy impacts developing world

Molly Madden | Thursday, April 16, 2009

Professors Jeffrey Bergstrand, Father Robert Dowd, C.S.C., and Amitava Dutt discussed the impact of the global economic crisis on developing nations in “The Cost of Crisis: The Outlook for International Development,” the final installment of a lecture series sponsored by the Ford Program.

The talk centered on the issue of what the global north can do to help with the problems of the global south that have arisen due to the crisis.

“Development itself, even when things are good, is very difficult,” Bergstrand, a professor of finance, said. “The big picture is that this crisis will have long-term effects on international development.”

Bergstrand stressed that while a significant part of the origins of the crisis came from Wall Street, the global community at large is suffering the consequences.

“In situations such as this, the developing world often pays a big price,” he said. “As our economy slows down, we slow down and import less. This begins the transmission that hurts development abroad.”

Dutt, a professor of economics, agreed that the crisis in the northern, or developed, region of the world has the potential to filter down and be destructive to the southern region.

“Most of the world’s poor live in the southern hemisphere,” Dutt said. “This crisis has put the poor in a precarious situation.”

Dutt said while the crisis is affecting Americans and other citizens of developed nations, it is nothing compared to the impact that it has on the members of developing nations.

“Here, the state of the economy means that you don’t take your fifth vacation,” he said. “Things are very different and much more detrimental to the south.”

Dutt said a unique situation had been created by the relationship between the developed nations and developing nations when the economy was not in decline.

“Before the crisis, rich countries would lend abroad to poorer countries,” he said. “When everything began to go wrong, instead of lending, these rich countries called back their loans right as the demand for the goods from these poor countries fell; it put these countries in a very strained situation.”

In addition to calling back loans and no longer importing their goods, these rich countries also reduced their level of aid.

“When the northern countries see the economy shrinking they cut down on giving foreign aid,” Dutt said. “This and contractions in the economy leads to a reduction in resources which additionally leads to a rise in poverty and usually inequality within the country.”

Dowd, a professor of political science, said the global community should be concerned about the deprivation that might arise as a result of feelings of inequality.

“During times of economic difficulties, politicians play on people’s fears,” Dowd said. “This deepening economic crisis is not good for democracies in the south, especially in countries where democracy is new.”

Dowd said these developing countries that have recently adopted democracy are prone to destruction.

“In most parts of the developing world, democracy is new and fledging and the governments are not very good at responding to a crisis such as this,” Dowd said. “This is going to make authoritarian regimes look much more favorable.”

Dowd said he fears that if these countries return to authoritarian rule, development will stall completely.

“It has been shown that democracy is better for development,” he said. “Whether or not a complete breakdown of democracy occurs depends on if the citizens blame the government of the day or the entire democratic system as the reason for their troubles.”

Dowd said the most important thing the northern countries can do in alleviating the troubles of the developing nations is to make sure government policies that are being pursued are not turning the country inward.

“What we need to remember is that policies that are focused on maintaining the standard of living in the developed world do not trump policies focused on basic living in the non-developed world,” Dowd said.