Impact of Financial Crisis on International Trade
This PDF is a selection from a published volume from the National Bureau of Economic Research
Volume Title: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14 Volume Author/Editor: Takatoshi Ito and Andrew K. Rose, editors Volume Publisher: University of Chicago Press Volume ISBN: 0-226-37896-9 Volume URL: http://www.nber.org/books/ito_05-1 Conference Date: September 5-7, 2003 Publication Date: August 2005
Title: The Effects of Financial Crises on International Trade Author: Zihui Ma, Leonard Cheng URL: http://www.nber.org/chapters/c0196
8 The Effects of Financial Crises on International Trade
Zihui Ma and Leonard K. Cheng
8.1 Introduction The world suffered three major financial crises in the last ten years, namely, the European Monetary System (EMS) crisis in 1992–1993, the Mexican crisis in 1994–1995 (which spread to a number of South American countries), and the Asian crisis in 1997–1998. Economists usually believe these crises were the results of weak economic fundamentals, for examples, declining foreign reserve, increasing foreign debt, capital account and current account deficits, fiscal deficit, and so on. Obviously, a current account deficit can be a very important factor because, other things being equal, it increases foreign debt, decreases foreign reserves, and weakens confidence in the exchange rate of the domestic currency. Almost all countries that suffered financial crises had faced rising current account deficits before the crises occurred. So such deficits are widely regarded as an important factor of financial crises. International trade links play an important role in the so-called contagious effect, that is, a crisis in one country causes a new crisis in another country with relatively good fundamentals. Glick and Rose (1999) provided some analysis of the relationship between trade and contagion, while
Zihui Ma is lecturer of international economics at Renmin University of China. Leonard K. Cheng is professor and
Volume Title: International Trade in East Asia, NBER-East Asia Seminar on Economics, Volume 14 Volume Author/Editor: Takatoshi Ito and Andrew K. Rose, editors Volume Publisher: University of Chicago Press Volume ISBN: 0-226-37896-9 Volume URL: http://www.nber.org/books/ito_05-1 Conference Date: September 5-7, 2003 Publication Date: August 2005
Title: The Effects of Financial Crises on International Trade Author: Zihui Ma, Leonard Cheng URL: http://www.nber.org/chapters/c0196
8 The Effects of Financial Crises on International Trade
Zihui Ma and Leonard K. Cheng
8.1 Introduction The world suffered three major financial crises in the last ten years, namely, the European Monetary System (EMS) crisis in 1992–1993, the Mexican crisis in 1994–1995 (which spread to a number of South American countries), and the Asian crisis in 1997–1998. Economists usually believe these crises were the results of weak economic fundamentals, for examples, declining foreign reserve, increasing foreign debt, capital account and current account deficits, fiscal deficit, and so on. Obviously, a current account deficit can be a very important factor because, other things being equal, it increases foreign debt, decreases foreign reserves, and weakens confidence in the exchange rate of the domestic currency. Almost all countries that suffered financial crises had faced rising current account deficits before the crises occurred. So such deficits are widely regarded as an important factor of financial crises. International trade links play an important role in the so-called contagious effect, that is, a crisis in one country causes a new crisis in another country with relatively good fundamentals. Glick and Rose (1999) provided some analysis of the relationship between trade and contagion, while
Zihui Ma is lecturer of international economics at Renmin University of China. Leonard K. Cheng is professor and