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"Comparative and International Political Economy and the Global Financial Crisis" published on by Oxford University Press.

Purpose
The purpose of this paper is to empirically assess the effect of the factors contributing to the recovery from this crisis in terms of national GDP growth among the G7, Asian7, and Latin American7 countries.


Design/methodology/approach
The author uses a multivariate regression analysis of the determinants of the global financial crisis recovery.


Findings
Based on data from 21 developed and developing emerging market economies the author found that good macroeconomic fundamentals together with more open financial policy, financial liberalization, financial depth, domestic performance, and favored global conditions do linearly influence national GDP growth. Over 85 percent of cross-country variations in GDP growth during the recovery phase of the global financial crisis can be explained by its linear dependency on pre-crisis national GDP growth, financial liberalization, financial depth, domestic performance, as well as interaction terms between various explanatory variables. Cross-country differences in national GDP growth also linearly depend on macroprudence and on favorable global conditions.


Originality/value
Results of such empirical examination may enable governments in developing countries devise resilience strategies that may serve as powerful tools for dealing with future global financial crises.

What began as an economic crisis in the United States (US), quickly transformed into a Global Financial Crisis (the Crisis) that has highlighted the major shortcomings of the global economic system. The crash of the US' banking sector and real estate markets has led many countries that were overly open to the international economy, or reliant on the United States, to the brink of recession. It is clear now that no country is immune from the effects. However, the way in which countries are affected is dependent on three main factors: how open they were to the international economic system; how reliant they were on the United States ' economy; and finally, how they react to and deal with the Crisis. China's banks were disconnected from the banking crisis in the US and they have essentially avoided a subprime mortgage problem. However, China' s economy and economic growth is currently still highly reliant on the foreign demand from countries in the West, many of which are now moving into recession. This presents a significant problem for China. How it deals with this will determine whether or not it can emerge a stronger power than before the Crisis or whether its economic growth will stall. Due to a drop in exports, China's expected gross domestic product (GDP) is predicted to fall to just 6.5 percent in 2009, down from the double-digit growth rates of the last decade. China is attempting to offset the loss in growth by moving to increase domestic consumption. The ¥4 trillion stimulus package implemented by the Chinese government is designed to target the problem. The Crisis has served to highlight China's reliance on exporting overcapacity, which means that China is vulnerable to fluctuations in foreign demand. The fall out from China's drop in economic growth has included the loss of 20 million jobs and the closing of several factories. This is cause for concern for the Chinese government, which is understandably keen to avoid a repeat of Tiananmen Square in 1989. Furthermore, if China focus on economic recovery at the expense of emissions control, this may lead to tension with other nations, particularly the US. The US and China represent the most important bi-lateral relationship of the 21 st century. Their fates have become intrinsically linked through the Crisis, as they are reliant on each other for economic prosperity. If the Chinese government cannot find a way to lift employment levels, increase domestic consumption, tackle the problem of the environment and maintain strong relations with the US , it is hard to see how China can avoid a significant economic and social disaster. China needs to undertake a significant program of increasing domestic consumption and at least offset a portion of the hole in economic growth, which a lack of foreign demand has caused. If China can increase domestic consumption by ten or twenty percent, then when foreign demand inevitably returns to the levels seen before the Crisis, China has the ability to export overcapacity. It is for this reason that there is a sense of optimism around the fate of China.