The Various Impacts of Global Financial Crisis on Trade Mechanisms - Case Study Example

Comments (0) Cite this document
Summary
From the paper "The Various Impacts of Global Financial Crisis on Trade Mechanisms" it is clear that the Global Financial Crisis had an impounding effect on the international trade mechanisms. One of the most obvious effects of GFC on trade was the decline in demand for goods and services. …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.7% of users find it useful
The Various Impacts of Global Financial Crisis on Trade Mechanisms
Read TextPreview

Extract of sample "The Various Impacts of Global Financial Crisis on Trade Mechanisms"

Download file to see previous pages Certain policies that should be employed by different trading nations all over the world in order to combat the effects of GFC have also been studied.
Mercantilism
This theory of international trade existed in the mid of 16th century. It postulated that the wealth of a nation depends on its accumulated treasure mainly in the form of gold. The trade surplus was believed to be the key trade practice. However, it had disadvantages of having restrictions in the form of government intervention and impaired growth (Reynolds, 2000).
Theory of Absolute Advantage
This theory is believed to be developed by Adam Smith. It was against the mercantilism trade theory and brought in the concept of free trade. Different countries can take advantage of their efficiency in producing different products and trade for other products. Hence all the countries would have simultaneous advantages while practising free trade (skidmore.edu, 2007, p.1).
Theory of Comparative Advantage
This is an extension of the free trade mechanism theory. This theory takes into consideration two important concepts, namely opportunity cost and the frontier of production possibility. It believes in efficient utilization of existing resources leading to the increase in productivity. A country may be efficient in producing certain products but still, it should import from another country if it is comparatively advantageous for the country (hawaii.edu, n.d.).
Factor Proportions Trade Theory
It is also known as Heckscher – Olin Theory. This theory states that those goods should be exported which are locally available in plenty and that makes intensive use of factor endowments. Factor endowments are the main determinants of trade and not its productivity. Here the focus is more on relative advantage rather than an absolute advantage. It takes into consideration two important factors related to production. They are labor and capital (ups.edu, n.d.).
New Trade Theory
The industries whose fixed costs are relatively high output are enhanced through specialization. The effects of learning are also quite high. Only a few competitors will be supported through the world demand. International trade results in increased income and output for a country. This results in enhanced savings as well. The rise in competition amongst different countries results in gains in trade which are dynamic in nature. Global Financial Crisis (GFC) that took place in 2008 proved to be a historical event in the world economy. It had a substantial effect on most of the nations in the world. It has led to the debacle of big financial institutions like Lehman Brothers all around the world. It resulted in the decline of share markets all over the world. It all started in the United States with the fall of its market involving sub-prime mortgages. Introduction of complex financial instruments has also been one of the prime reasons behind the crisis. Securitization of mortgage loans in the US was done with the objective of mitigating risk but ultimately it led to the increase of risk through increased use of derivatives instruments in the market as speculative instruments and finally resulted in financial crisis.  ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(The Various Impacts of Global Financial Crisis on Trade Mechanisms Case Study, n.d.)
The Various Impacts of Global Financial Crisis on Trade Mechanisms Case Study. Retrieved from https://studentshare.org/marketing/1449453-international-trade-and-competition
(The Various Impacts of Global Financial Crisis on Trade Mechanisms Case Study)
The Various Impacts of Global Financial Crisis on Trade Mechanisms Case Study. https://studentshare.org/marketing/1449453-international-trade-and-competition.
“The Various Impacts of Global Financial Crisis on Trade Mechanisms Case Study”, n.d. https://studentshare.org/marketing/1449453-international-trade-and-competition.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF The Various Impacts of Global Financial Crisis on Trade Mechanisms

Global Financial Crisis

...proceedings rather than long-term investments made in the real economy. The crisis then spread to the real economy through various channels. Initially, the crisis spread through the financial system process of securitisation of ‘toxic assets’. Direct exposure to ‘toxic assets’ led to some localised bank failures and thus the inter bank credit was affected. As a result, the volume of new credit available to the real economy eventually declined (International Labour Organization, 2009). Also the crisis scattered globally through international association with trade practices and as a result, the developed countries of the...
8 Pages(2000 words)Coursework

Global Financial Crisis

...stimulate demand and support global recovery if only they could get enough finances. Conclusion The financial crisis has had great impact on world economies. It began in the credit markets and spread to the real economy and from developed to developing countries. Lack of regulation in credit markets coupled with loose monetary policy which culminated into the housing boom and sub prime mortgages and consequently growth in mortgage backed securities in the US was the major causes of the crisis. The complexity of the securities and underestimation of risk by rating agencies made the crisis more severe. The government actions in response...
6 Pages(1500 words)Essay

The Global Financial Crisis

.... New York: John Wiley and Sons. Langohr, H., & Langohr, P., 2008. The rating agencies and their credit ratings: what they are, how they work and why they are relevant. New York: John Wiley & Sons. Maximilian J., B. 2009. "The reform of UK financial regulation," Discussion Paper Series 2009_16, Department of Economics, Loughborough University. Nanto, D., 2009. Global Financial Crisis: Foreign and Trade Policy Effects. London: DIANE Publishing. Peters, M., 2010. What the 2008/2009 World Economic Crisis Means for Global Agricultural Trade. London: DIANE Publishing. Savona, P., Kirton, J., & Oldani, C.,...
4 Pages(1000 words)Essay

Global Financial Crisis

...Global Financial Crisis The impending financial crisis in the globe, has been brewing for a while, and it began to show its adverse effects in 2007. All over the globe, stock markets have declined, leading financial institutions have collapsed or bought out, and governments, even of the wealthiest countries have had to develop rescue packages to help bail out their collapsing financial systems. The global financial crisis have affected and will continue affecting the livelihoods of nearly everyone in the increasingly inter connected globe. As a case study, I will view...
6 Pages(1500 words)Essay

Global Financial Crisis

...in a vicious circle of profit pressure and employment instability. (G.F. Davies, 2009) Following a period of economic boom, a financial bubble-global in scope-has now burst. A collapse of the US sub-prime mortgage market and the reversal of the housing boom in other industrialized economies have had a ripple effect around the world. Furthermore, other weaknesses in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail. (Forward Block, December, 2009) The subprime crisis came about in large part...
5 Pages(1250 words)Essay

GLOBAL FINANCIAL CRISIS

.... These kinds of unethical activities eventually lead to the worsened economic situation. HOW GLOBALIZATION PLAYED A ROLE The international financial crisis started on a small scale when the best financial institutions started to collapse, and had to file for bankruptcy. Due to the high interdependency and interrelatedness of the whole global world with each other, due to the phenomena of globalization, the effect started to spread worldwide, and became international, with almost all countries and all sectors getting affected by it. From the common man to the huge institutions and industries, the effect of the financial...
5 Pages(1250 words)Essay

Global Financial Crisis

...mainly in the face of immense investor demand for subprime loans delineated as AAA bonds. The ownership of the mortgage backed securities was broadly dispersed yielding repercussions that spread throughout the global system when the subprime loans went bad (Shiller 2012, p.39). Major financial institutions were exposed to toxic shock by securitization was a significant cause of the banking crisis. Hence, the regulatory response should require that those carrying out securitization withhold a tranche of the commodities they trade. The lack of transparency intrinsic in over-the-counter trading shapes one of the numerous reasons why “toxic” assets...
8 Pages(2000 words)Assignment

Global Financial Crisis

...Global Financial Crisis Review This article written by Shah (2013) explains more about financial crises. There are different themes coming across the reading. First, the theme of financials institution collapse is brought about in the reading. Another theme discussed in the article is the global financials crises. The theme of conflict is also highlighted as some people disagree with the main cause of the financials crises. As highlighted by the article, financials crises begun in the year 2007 and 2008 and this led to closure and collapse of many financial institutions...
2 Pages(500 words)Article

Global Financial Crisis

...GLOBAL FINANCIAL CRISIS of The general impact of the global financial crisis on the economic and financial conditions of the international market place can be gathered from the changes in the performance of big multinationals, central banks and the governments of the nations. However, this report focuses on the reasons behind the initiation of the global recession, its influence on the corporate segment, the responses of the firms and the current position of the recession. It is yet debateable among scholars regarding the beginning of the recession but most of them consider the micro-credit policy of US which led to the recession. On the other hand, the corporate sector faced critical conditions as money flow in the market reduced... ....
10 Pages(2500 words)Article

Asian Financial Crisis Versus Global Financial Crisis

...Introduction This paper is about the ongoing Global Financial crisis and the Asian financial crisis of the late 1990’s. The paper attempts to study the similarities between these two crises and the differences between them along with an analysis of the causes, effects and recovery strategies used by the various governments in the aftermath of these crises. The role of the regulatory agencies has come under scrutiny in both the crises and they have been criticized for turning a “blind eye” to the rampant financial speculation and when the crisis struck, acting in haste which led to some undesirable...
9 Pages(2250 words)Term Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Case Study on topic The Various Impacts of Global Financial Crisis on Trade Mechanisms for FREE!

Contact Us