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International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks

Author

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  • Escaith, Hubert
  • Gonguet, Fabien

Abstract

The article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other, either as supplier of intermediate goods or client for their own production, an exogenous financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. The paper indicates that when banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator (IRSIC) and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.

Suggested Citation

  • Escaith, Hubert & Gonguet, Fabien, 2009. "International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks," MPRA Paper 15558, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15558
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    File URL: https://mpra.ub.uni-muenchen.de/18432/1/MPRA_paper_18432.pdf
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    References listed on IDEAS

    as
    1. Christos T. Papadas & Dale C. Dahl, 1999. "Supply-Driven Input-Output Multipliers," Journal of Agricultural Economics, Wiley Blackwell, vol. 50(2), pages 269-285.
    2. Repullo, Rafael & Suarez, Javier, 2008. "The Procyclical Effects of Basel II," CEPR Discussion Papers 6862, C.E.P.R. Discussion Papers.
    3. repec:spo:wpecon:info:hdl:2441/2537 is not listed on IDEAS
    4. J. Peter Neary, 2009. "Putting the "New" into New Trade Theory: Paul Krugman's Nobel Memorial Prize in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 217-250, June.
    5. Guillaume Daudin & Paola Monperrus-Veroni & Christine Rifflart & Danielle Schweisguth, 2006. "Le commerce extérieur en valeur ajoutée," Revue de l'OFCE, Presses de Sciences-Po, vol. 98(3), pages 129-165.
    6. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    7. Inomata, Satoshi, 2008. "A New Measurement for International Fragmentation of the Production Process: An International Input-Output Approach," IDE Discussion Papers 175, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    8. Mika Saito, 2004. "Armington elasticities in intermediate inputs trade: a problem in using multilateral trade data," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 1097-1117, November.
    9. Peltonen, Tuomas & Pula, Gabor, 2009. "Has emerging Asia decoupled? An analysis of production and trade linkages using the Asian international input-output table," Working Paper Series 993, European Central Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Escaith, Hubert & Lindenberg, Nannette & Miroudot, Sébastien, 2010. "International supply chains and trade elasticity in times of global crisis," WTO Staff Working Papers ERSD-2010-08, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession," MPRA Paper 18433, University Library of Munich, Germany.
    3. Georgescu, George, 2013. "România în perioada post-criză: investiţiile străine directe şi efecte asupra echilibrului financiar extern
      [Romania in post-crisis period: foreign direct investments and effects on external financ
      ," MPRA Paper 46531, University Library of Munich, Germany.
    4. Porzecanski, Arturo C., 2009. "Latin America: The Missing Financial Crisis," MPRA Paper 18780, University Library of Munich, Germany.
    5. Bo Meng & Satoshi Inomata, 2011. "Impact of the Global Economic Crisis on Employment in the Asia-Pacific Region," Chapters,in: Asia Beyond the Global Economic Crisis, chapter 2 Edward Elgar Publishing.
    6. Hubert Escaith & Fabien Gonguet, 2011. "International Trade and Real Transmission Channels of Financial Shocks in Global Production Networks: An Asian–USA Perspective," Chapters,in: Asia Beyond the Global Economic Crisis, chapter 3 Edward Elgar Publishing.
    7. Ricardo Argüello C.a, 2009. "Latin America and the international economic CRISIS: THE TRADE CHANNEL," ECONOMÍA, GESTIÓN Y DESARROLLO 009340, UNIVERSIDAD JAVERIANA - CALI.
    8. Jinjarak, Yothin, 2013. "Supply Chains and Credit-Market Shocks: Some Implications for Emerging Markets," ADBI Working Papers 443, Asian Development Bank Institute.
    9. Argüello C., Ricardo, 2009. "The International Economic Crisis, the Trade Channel, and the Colombian Economy," PERFIL DE COYUNTURA ECONÓMICA, UNIVERSIDAD DE ANTIOQUIA - CIE, August.

    More about this item

    Keywords

    international supply chains; monetary circuit; real linkages; transmission channels of financial shock; Asian International Input-Output Tables;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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