IDEAS home Printed from
   My bibliography  Save this paper

Financial Crisis, Trade, and Fragmentation


  • Deardorff, A.V.


Motivated by the Asian financial crises that began in 1997, this paper adds money to a Ricardian model of international trade in order to explore the role of financing costs in general-equilibrium trade. The purpose is to show not only that financing costs matter, but to argue a potentially important effect of a financial crisis. If financial markets suddenly come to expect a country's currency to depreciate, as might happen if it has attempted an unsustainable peg, then that expectation will itself force a depreciation. The depreciation will in turn make it impossible for international traders to repay their financing, and their default will increase the costs of financing trade in subsequent periods. Finally, this crisis-induced increase in costs of trade financing then undermines both trade itself and the gains from trade. The paper also goes on to argue that fragmentation - he splitting of production processes across countries - contributes to both trade and the gains from trade, but in doing so it makes countries more vulnerable to these effects of a financial crisis.

Suggested Citation

  • Deardorff, A.V., 2000. "Financial Crisis, Trade, and Fragmentation," Working Papers 458, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:458

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    1. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-277, July.
    2. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
    3. Blomstrom, Magnus & Wolff, E.N., 1989. "Multinational Corporations And Productivity Convergence In Mexico," Working Papers 89-28, C.V. Starr Center for Applied Economics, New York University.
    4. Aitken, Brian & Harrison, Ann & Lipsey, Robert E., 1996. "Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States," Journal of International Economics, Elsevier, vol. 40(3-4), pages 345-371, May.
    5. Dani Rodrik, 1994. "Industrial Organization and Product Quality: Evidence from South Korean and Taiwanese Exports," NBER Chapters,in: Empirical Studies of Strategic Trade Policy, pages 195-210 National Bureau of Economic Research, Inc.
    6. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
    7. Dyck, I J Alexander, 1997. "Privatization in Eastern Germany: Management Selection and Economic Transition," American Economic Review, American Economic Association, vol. 87(4), pages 565-597, September.
    8. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    9. Grossman, Gene M. & Helpman, Elhanan, 1991. "Trade, knowledge spillovers, and growth," European Economic Review, Elsevier, vol. 35(2-3), pages 517-526, April.
    10. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-694, July.
    11. Findlay, Ronald, 1978. "Some Aspects of Technology Transfer and Direct Foreign Investment," American Economic Review, American Economic Association, vol. 68(2), pages 275-279, May.
    12. Claessens, Stijn & Djankov, Simeon, 1999. "Enterprise performance and management turnover in the Czech Republic," European Economic Review, Elsevier, vol. 43(4-6), pages 1115-1124, April.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Deardorff, Alan V, 2001. "International Provision of Trade Services, Trade, and Fragmentation," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 233-248, May.
    2. Beladi, Hamid & Chakrabarti, Avik & Marjit, Sugata, 2014. "A Ricardian Theory of Production, Trade and Finance - The Role of Credit Market Imperfection," MPRA Paper 60830, University Library of Munich, Germany.
    3. Nicolas Berman & Antoine Berthou, 2009. "Financial Market Imperfections and the Impact of Exchange Rate Movements on Exports," Review of International Economics, Wiley Blackwell, vol. 17(1), pages 103-120, February.
    4. repec:hal:journl:halshs-00118834 is not listed on IDEAS

    More about this item



    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mie:wpaper:458. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FSPP Webmaster). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.