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

Abstract

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.JEL classification: C67, F23, F36, G01, L16

Exchange Rate Devaluation and Reshuffling of Global Jobs

“…Several contributions test whether wages, economic and geographical distance, and FDIs could explain the international fragmentation of production (Baldone et al, 2001;Fukao et al, 2003;Jones et al, 2005;Gabrish and Segnana, 2008;Turkan and Ates, 2011); another field of empirical work verifies the effects of fragmentation on employment and relative wages of skilled and unskilled workers (Feenstra and Hanson, 1999;2001;Hijzen et al, 2005;Helg and Tajoli, 2004;Zeddies, 2011), and its effects on economic growth (Baldone et al, 2007;Durking and Krygier, 2000), as well as on trade volatility (Escaith and Gonguet, 2009).…”

“…In addition, fragmentation is likely to cause a distortion in trade statistics that can misguide the interpretation of global imbalances (Lamy, 2011). Fragmentation of production may also be held responsible for increased trade volatility (Escaith and Gonguet, 2009) and the coordination of business cycles across countries (Ng, 2010). This paper investigates the relations between international fragmentation of production and exchange rates, a topic that received little attention so far, with the notable exception of Wu (2010) 1 .…”

Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession

“…As a result, there is always a significant level of inventories in a global supply chain, translating into a higher demand for banking loans (Escaith and Gonguet, 2009). When a drop in final demand reduces the activity of down-stream firms, or/and when they face a credit crunch, their first reaction is to run down their inventories.…”

Влияние Глобализации На Формирование Факторов Развития Конкурентной Среды Предприятий Высокотехнологичных Отраслей

“…В случаях международных компаний это может принимать глобальные масштабы разрушения экономических связей в национальной экономике [5]. В нашем экономическом пространстве дополнительным «шоком» стал запрет международным компаниям, преимущественно из нефтегазового и машиностроительного секторов (например, Siemens AG, Rheinmetall AG, Exxon Mobil Corporation, Royal Dutch Shell plc.…”