The following is an excerpt from the paper written by Nouriel Roubini and Ayah El Said examining the ways in which the global financial crisis has been transmitted to emerging market economies. The paper also looks at domestic and international policy responses once these economies started to show signs of distress. This paper is published as part of the World Economic Forum’s “Financial Development Report 2009.”

In 2008 there was a lot of talk about emerging market economies being able to decouple from the US recession and financial crisis. But, in spite of these arguments, first financial re-coupling and then real economic re-coupling took place once the advanced economies’ financial tsunami became global after the summer and fall of 2008. This led to a severe contagion in emerging market economies. It is often said that “when the United States sneezes, the rest of the world catches the cold”; this time around, the United States was not sneezing but rather had caught a severe case of chronic pneumonia; thus the financial contagion, followed by the real contagion, became virulent even in emerging markets.

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