Financial Crisis, Trade, and Fragmentation
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.
1. Check below under "Related research" 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.
|Date of creation:||2000|
|Date of revision:|
|Contact details of provider:|| Postal: ANN ARBOR MICHIGAN 48109|
Phone: (734) 764-3490
Fax: (734) 763-9181
Web page: http://fordschool.umich.edu/rsie/
More information through EDIRC
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)
If references are entirely missing, you can add them using this form.