1 Introduction Changes in international trade flows and world prices are major channels through which the global financial crisis will hit developing countries. The recession in the ‘global North’ triggered by the financial crisis and the resulting slowdown of growth in China and other major emerging economies generates a decline in demand for exports from developing countries, along with a reversal of the beneficial terms-of- trade trends that have favoured net exporters of primary commodities over the last few years. How these trade shocks and terms-of-trade trends affect economic performance and welfare in low-income countries depends on country- specific characteristics, especially initial trade patterns, and requires a differentiated analysis across countries. This study uses a multi-region computable general equilibrium (CGE) world trade model to gauge the impact of a slowdown in economic activity in the OECD on trade performance, world prices, and aggregate welfare in the rest of the world with a particular focus on the least developed countries (LDCs) in sub-Saharan Africa and Asia and on other Department for International Development (DFID) focus countries. The results of the simulation analysis indicate the degree of vulnerability of different developing countries and regions distinguished in the model to impacts arising from the recession via the trade channel. Using these results, one can quantify the general order of magnitude of additional external assistance that would be required to compensate developing countries for the negative trade shocks emanating from the ‘North’. In addition to the trade channel, there are important potential impacts that work through financial channels such as contractions of trade credit, declines in foreign investment, drops in remittances, and changes in foreign debt servicing burdens. This study focuses on the trade channel using a model of real trade flows in which financial flows are held fixed. While it is possible to use such a real trade model to explore the impact on global trade and production of exogenous macro shocks working through financial flows, it is useful to isolate the impacts working through the trade channel to get a sense 14 The OECD Recession and Developing Country Trade: A Global Simulation Analysis Sherman Robinson and Dirk Willenbockel Abstract International trade is one of the main channels through which the global financial crisis hits developing countries. The recession in the ‘global North’ triggered by the financial crisis and the resulting slowdown of growth in other major emerging economies will generate declines in demand for exports from developing countries, along with a reversal of the beneficial terms-of-trade trends that have favoured net exporters of primary commodities over the last few years. How these terms-of-trade effects affect economic performance and welfare in low-income countries depends on country-specific characteristics and require a differentiated analysis. We use a multi-region computable general equilibrium world trade model to gauge the impact of a slowdown in the Organisation for Economic Co-operation and Development (OECD) on the rest of the world, with a particular focus on the least developed countries. The analysis aims to identify the characteristics of regions most vulnerable to adverse global crisis impacts via the trade channel. IDS Bulletin Volume 40 Number 5 September 2009 © 2009 The Authors. Journal compilation © Institute of Development Studies Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA