GLOBAL CRISIS: TRANSMISSION CHANNELS TO THE DEVELOPING AND TRANSITION COUNTRIES

The failure of American sub prime mortgages has caused the outbreak of a financial crisis in the summer of 2007 in the USA. As consequence, American crisis has affected, the followed months, the entire international financial system. A year later, the crisis has hurt all which are strongly integrated in the international financial system , notably the developed ones. Deficiencies occurred in the system have deeply affected the whole economic development in these countries. This way, the crisis turned into a financial and economic crisis. When talking about the financial and economic crisis, it should be noticed that they are both complementary aspects of the current global crisis. Otherwise said, a fiasco occurred in the financial sector have its consequences on the economy and contrariwise. The breakdown of financial markets, which are thought to be a generator of economic growth, has consequently affected the real sector. Thus the real sector in developed has experienced a real decline as a result of international financial institutions reducing solvency and tighter credit conditions. In this situation, many manufacturers had to restrain their activity, reducing their personnel and the volume of production and acquisitions, especially of equipment. In consequence of production adjustment corporate profits have significantly decline. It may seem strange, but initially, when the global crisis outburst some developing and transition have had a suspicious and to some extent, negligent attitude regarding the severity and complexity of the consequences of such a crisis. Some of them have even had a fairly optimistic attitude, underestimating its scale. They considered that changes in the developed countries economy could produce any positive effects on some countries, misestimating their negative impact. In the context of globalization, when the world interaction get greater and developed represent the central link of the global economic system, a potential crisis of such magnitude could not leave the less developed intact. Although being less integrated into international financial system, these are strongly linked to other national economies. Among all developing and transition countries, the crisis would have the most resounding echo in the with a high developed industry and those supplying natural resources, particularly energy and steel - such as the example of Russia, Ukraine and other countries. This is inevitable in the context of a deep sense of mistrust developing in the society, accompanied by a sharp fall in the global demand for intermediate goods as well as consumer goods. Being considered the above mentioned, in this paper we intend to develop a theoretical model that would simulate the impact that global crisis could have on developing and transition economies. The model will be focused on the analyses of the most important channels through which the current crisis could transmit to an economy. In our opinion, these channels are represented by the main flows of foreign capital financing an emerging economy-FDI, external trade, remittances and official external assistance and international credits. Within the paper, there also will be made an empirical analysis of global crisis spreading to with different economic structures, applying the theoretical model we have elaborated.