73rd International Atlantic Economic Conference

March 28 - 31, 2012 | Istanbul, Turkey

The impact of the global financial crisis on trade flows in emerging economies

Saturday, 31 March 2012: 9:10 AM
Bilge Kagan Ozdemir, PhD , Economics, Anadolu University , Eskisehir, Turkey
Biru Paksha Paul, PhD , Economics, State University of New York at Cortland, Cortland, NY
German Zarate-Hoyos, PhD , Economics, State University of New York at Cortland, Cortland, NY
The Impact of the Global Financial Crisis on Trade Flows in Emerging Economies: The Case of Brazil, India, and Turkey

The effects of the Global Financial Crisis, which began in 2007 in the U.S. mortgage and financial sector and then hit Europe with full force in 2008, have also become increasingly felt in developing and emerging countries. This crisis hit Brazil, India, and Turkey, and led to a significant economic slowdown especially because of the heavy dependence of these countries on external financing as well as on manufacturing exports. The objective of this paper is to present the effects of this crisis on emerging economies, especially the channel between the crisis and a fall in international trade. In so doing, we also attempt to draw a path of reforms to sustain the recovery process to be learnt by these emerging economies, which are further ahead on the road to recovery.

Discussion begins with analyzing the impacts of the global financial crisis on key economic fundamentals of these emerging economies. In order to assess the impacts of the current crisis on trade flows in emerging economies, a set of regressions will be estimated by using the following variables; Gross Domestic Product (GDP), trade finance flows, export-import volumes, world trade volume, relative price indexes of imports and exports, and finally the dummy for domestic banking crisis. The empirical results show that there is a strong relationship between financial conditions and trade volumes in emerging economies, which need to support trade financing to sustain the recovery process.

 Keywords: Global Financial Crisis, Brazil, India, Turkey, Trade Finance, Recovery