Causes of the great recession of 2007–2009: The financial crisis was the symptom not the disease! |
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Institution: | 1. Banco de Portugal, Portugal;2. Adam Smith Business School, University of Glasgow, G12 8QQ, United Kingdom;1. University of Amsterdam, Netherlands;2. CEPR, United Kingdom;3. Olin Business School, Washington University in St. Louis, United States;4. ECGI, Belgium;1. Columbia Business School, USA |
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Abstract: | Globalization has increasingly made it possible for labor in developing countries to augment labor in the developed world, without having to relocate, in ways not thought possible only a few decades ago. We argue that this large increase in the developed world’s effective labor supply, triggered by geo-political events and technological innovations, coupled with the inability of existing institutions in the US and developing nations themselves to cope with this shock, set the stage for the great recession. The financial crisis in the US was but the first acute symptom. |
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