The paper "Impact of the Global Financial Crisis on Developing Economies - Philippines" is a perfect example of a micro and macroeconomic case study. In September 2008, an American bank with global investments called Lehman Brothers was publicly declared insolvent, after it files for bankruptcy protection. The incident heralded subsequent bankruptcies and takeovers of other banks and financial institutions across Europe and the United States and to a small extent Australia (Yap et al. 2009; Brown & Davis 2009). This sent significant shocks across the global financial system, including in the thriving economies in East Asia.
The spread of the financial crisis can be explained by the Contagion theory, which suggests a situation where the collapse of the currency in one country triggers financial or economic crisis to happen in other countries (Kogid et al. 2009). Consequently, many other Asian economies like Singapore, Japan, Malaysia, Philippines, and Hong Kong witnessed significant economic downturn (Yap et al. 2009). At this point in time, the financial crisis, which has origins in the United States subprime mortgage market spiralled into a global recession.
In respect to the Philippines, the Philippine banks had initially tended to have a relatively conservative attitude, which should have contributed to marginal effects of the crisis on the economy but this was not the case. Indeed, when compared to other East Asian economies, the economic growth of the Philippines has been slow, following the crisis (Yap 2009; Yap et al. 2009). This essay argues that while the Philippines had at the onset of the 2008-2009 financial crisis withstood the global financial unrest better than most economies in East Asia because of its conservative policies, the situation had some risks on the country’ s asset markets, financial sector, foreign exchange market, real sector and macroeconomic balance. The effects of the crisis on the Philippines’ asset markets The financial crisis slowed foreign investment into the Philippines by leading to significant capital outflows.
The financial crisis triggered virtual freeze in liquidity across the financial markets in the United States and Europe, which led to the setback of capital flows to the developing countries – among them Philippines (Yap et al. 2009).
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