Topic 6 Trade Theory, Practices and Financing in Crises for MNCs

Topic 6 Trade Theory, Practices and Financing in Crises for MNCs

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1 Topic 6. International Trade, Practices and Trade Financing in Crises for MNCs November 2013 Dr. Bang Jeon Trade collapse during the global crisis of 2007-9 Imports and exports of advanced and developing economies fell by 11.7-13.5% in 2009 from 2008. – Serious global impacts: income effects, global financial flow readjusted, FX rates realigned, term-of-trade change, rising unemployment, government bail-outs, trade protectioism The larger-than-expected drop in trade has puzzled economists and policy makers. Why and how? The US trade collapse Source: ± The Trade Collapse: Lining Up the Suspects ² by S. Contessi and H. El-Ghazaly, The Regional Economist, April 2010 Trade falls more than GDP decline : Why? Lower demand due to recession and uncertainty Income effects (real) vs. price effects (nominal) Competitive devaluation of FX rates A sharp rise in risk premium in equity, currency, money markets Protectionism A real threat with various trade restrictions Trigger the beggar-thy-neighbor rounds of increase in tariffs & NTBs Collapse of trade finance Due to credit crunch and increased risk premium Trade falls more than GDP decline : Why? (2) The increase in vertical specialization (The iPhone example) – Capital goods – Intermediate goods (3/4 of the US imports) – Accounting: GDP (value-added) vs. trade (the full value) 1:4 for the US Sector-specific – Input-output linkages Quantity effects vs. price effects The recent recovery projection (IMF, 2013): – The world GDP growth (3.3%) vs. the world trade growth (5.0%) Consider the example of the iPhone. ! Its CPU and video processing are made in Singapore. Its digital camera, circuit boards and metal casings are made in Taiwan.
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Topic 6 Trade Theory, Practices and Financing in Crises for MNCs

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