Causes of the Great Recession of 2007-9: The Financial Crisis is the Symptom not the Disease!

Ravi Jagannathan, Mudit Kapoor, Ernst Schaumburg

NBER Working Paper No. 15404
Issued in October 2009
NBER Program(s):   EFG

Globalization has 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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This paper was revised on December 5, 2011

Acknowledgments

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