The Global Financial Crisis and African Economies: Impact and Transmission Channels

Abstract

This paper is intended to highlight the general impact of the crisis on African countries in terms of economic performance and then show some variations across countries by discussing how the different transmission channels operated in them, and what their effects have been. The paper has noted that the global financial and economic crisis has affected African economies in a significant way, mostly indirectly through the harm it causes to the real sectors of the economies. In aggregate terms, the impact has been quite strong, as shown by the sharp drop in aggregate output around the region. Even though there are both direct and indirect channels for transmitting the crisis to African economies from the rest of the world, the indirect channels have been more pronounced in their effects largely on account of the structures of these economies. The integration of these economies into the global economy has been largely on account of trade in goods and also the consequence of migration, hence the effects on the real sectors and in remittance flows. There have been significant variations in the impact of the crisis across countries, and this has been influenced largely by the quality of institutions, particularly for regulation, and initial conditions prevailing in the countries.