August 10, 2009
Abstract: By August 2009, there are clear signs that the global economy is in the recovery stage of the business cycle. While a boom phase makes all businesses look like winners, the phases of recession and the subsequent recovery act as a huge differentiator among firms, with less efficient firms experiencing financial distress and even bankruptcies, and frequently facing pressures to lay off employees. These negative consequences have provided the underpinnings of institutional safeguards against recessions in the developed economies. With their exposure to business cycles growing, developing countries increasingly need similar safeguards. For example, to contain the impact of financial distress, the processes governing both the disposal and acquisition of assets need to be streamlined. Similarly, dealing with unemployment would require (a) providing unemployment insurance to vulnerable workers; and (b) facilitating absorption of unemployed workers in other sectors.
Keywords: recovery; differentiation; financial crisis; unemployment; institutional safeguard; business cycle