Impact of Financial Crisis on International Trade Essay Example for Free

Impact of Financial Crisis on International Trade Essay The work described in this paper was substantially supported by a grant from the Research Grant Council of the Hong Kong Special Administrative Region, China (Project no. HKUST6212/00H). 253 254 Zihui Ma and Leonard K. Cheng Forbes (2001) went further to construct some statistics measuring the importance of trade linkages in transmitting crises. Because most economists agree that international trade is one of the important factors in explaining ? nancial crises, it seems natural and logical to ask the reverse question: what are the e? ects of ? nancial crises on international trade? Surprisingly, little research on this subject has been done. Perhaps the reason is that the answer appears to be obvious. Conventional wisdom would predict that a ? nancial crisis, by bringing about a recession in the macroeconomy, would lead to a drop in imports. Exports, however, may rise because of both a decline in domestic demand and a devaluation of the domestic currency. A weakening or collapse of the ? nancial system, in particular the banking system, however, might weaken the country’s export capability. So the aggregate e? ects of a ? nancial crisis on the macroeconomy are unclear. This paper tries to ascertain whether the ambiguity can be resolved empirically. We divide all the past ? nancial crises into two types: banking crises and currency crises. These two di? erent types of crises had di? erent attributes and di? erent e? ects on international trade. This paper begins by analyzing theoretically the e? ects of banking and currency crises on international trade. Then it uses bilateral trade data, macroeconomic data, and geographic data to test the theoretical predictions. Overall, the empirical results provide support for the theoretical predictions. This paper contributes to the literature in two ways. First, it provides a theoretical framework for understanding the impact of ? nancial crises on international trade and the channels of crises transmission through trade. Second, it estimates the e? ects of banking crises and currency crises on imports and exports. The estimated results can be used to predict the impact of ? nancial crises on trade, thus providing useful information for risk management to policymakers. The remainder of the paper is organized as follows. Section 8. 2 reviews previous works on the relationship between international trade and ? ancial crisis. Sections 8. 3 and 8. 4 analyze the e? ects of banking crises and of currency crises on trade, respectively. Section 8. 5 describes the data and methods used to estimate the e? ects of these crises. Section 8. 6 reports the results of empirical estimation and statistical testing. Section 8. 7 concludes. 8. 2 Literature Review: Trade and Financial Crises Economists pay attention to the role played by trade in ? nancial crises for two reasons. First, trade imbalance has been shown to be one of the important factors that trigger ? nancial crises. Current de? cits may decrease foreign reserves. As Krugman (1979) pointed out, a currency crisis is more likely to happen in an economy that does not have enough foreign reserves. The E? ects of Financial Crises on International Trade 255 Second, ? nancial crises may be transmitted through trade linkages from an a? ected country to others despite the latter’s relatively good fundamentals. In explaining such contagion e? ects, economists have tried to identify the channels through which contagion was spread. As trade is the most obvious economic linkage between countries, much research has been devoted to this connection. While the importance of trade imbalance in triggering crises is widely accepted, there is no agreement on the importance of trade in transmitting ? nancial crises. Eichengreen and Rose (1999) used a binary-probit model to test whether bilateral trade linkages transmitted crises between industrial countries between 1959 and 1993. They found that the probability of a ? nancial crisis occurring in a country increased signi? cantly if the country had high bilateral trade linkages with countries in crises. They concluded that trade was an important factor. Glick and Rose (1999) conducted a similar analysis with more countries between 1971 and 1997 and obtained a similar result. Forbes (2000) used a company’s stock market data to study the importance of trade in ? nancial crises transmission, and his result also showed that trade played an important role. However, other papers have provided di? erent answers to the problem. For instance, Baig and Goldfajn (1998) thought that trade linkage was unimportant in the East Asian Crisis because the direct bilateral trade volumes between these economies were very small. Masson (1998), analyzing the Mexican crisis and the Asian crisis, obtained similar results. All the papers that analyzed the relationship between trade and ? nancial crises ignored the reverse question: how did ? nancial crises a? ect international trade? We argue that the e? ects of ? nancial crises on trade are a precondition for discussing whether trade transmits crises. If ? nancial crises do not a? ect countries’ imports and exports at all, how can ? nancial crises be transmitted through the trade channel? So before we analyze the importance of trade in transmitting ? ancial crises, we need to clarify the e? ects of ? nancial crises on international trade. As pointed out previously, little work has been done on this topic to date. It seems there is a belief that ? nancial crises only a? ect countries’ imports and exports through changes in the exchange rates. Because the e? ects of exchange rates have already been thoroughly analyzed before, it may seem that there is no need to study the question. However, this view may not be correct. A devaluation of a national currency will increase the volume of exports and reduce the volume of imports. Classic international trade theory shows that a devaluation improves the trade balance if the Marshall-Lerner condition is satis? ed. Because in a ? nancial crisis a country usually experienced a devaluation of its national currency, the same analysis would apply, that is, the a? ected countries’ imports will decrease, but their exports will increase after the crises. Furthermore, ? nancial crises (including currency crises, banking crises, 256 Zihui Ma and Leonard K. Cheng or both) could also a? ect trade through channels besides the exchange rate. Calvo and Reinhart (1999) pointed out that ? nancial crises usually caused capital account reversal (sudden stop) and triggered an economic recession. Mendoza (2001) showed that in an economy with imperfect credit markets these sudden stops could be an equilibrium outcome. The economic recession reduces not only domestic demand but also total output and export capability, whereas capital out? ow forces the country to increase export. Thus, whether exports increase or decrease after ? nancial crises is unclear without further analysis. Before we analyze how ? nancial crises a? ct the crisis countries’ imports and exports, let us ? rst de? ne ? nancial crises. Eichengreen and Bordo (2002) have provided de? nitions of currency crises and banking crises: For an episode to qualify as a currency crisis, we must observe a forced change in parity, abandonment of a pegged exchange rate, or an international rescue. For an episode to qualify as a banking crisis, we must observe either ba nk runs, widespread bank failures and suspension of convertibility of deposits into currency such that the latter circulates at a premium relative to deposits (a banking panic), or signi? ant banking sector problems (including but not limited to bank failures) resulting in the erosion of most or all of banking system collateral that are resolved by a ? scally-underwritten bank restructuring. (15–16) The above de? nitions are adopted in this paper. In the next two sections, we analyze the e? ects of banking crises and currency crises on the macroeconomy and trade. 8. 3 Impact of Banking Crises A classical framework of bank runs was developed by Diamond and Dybvig (1983). Let us recapitulate the key elements of their model. Agents are endowed with goods that can be invested in a long-term project or stored without costs. The long-term project is pro? table but illiquid, that is, if investors do not liquidate the project before it matures, its return is greater than the initial investment; however, if the project is liquidated before it matures, the ? re-sale return is less than the initial investment. Each agent can be impatient or patient with ? xed probabilities, but there is no aggregate uncertainty, that is, the total number of impatient agents is ? xed and known by all agents. At the beginning, agents do not know their own types but must decide if they will invest in the project. After they have invested (or have decided not to invest), but before the project matures, each agent realizes his or her own type. Impatient agents must consume immediately, whereas patient agents do not consume anything until the project matures. Agents’ types are private information, so even if each agent knows his or her own type, other people do not know. The E? ects of Financial Crises on International Trade 257 On the one hand, if an agent does not invest in the project but turns out to be patient, then the agent has missed a pro? table investment opportunity.

World War II Essay -- History, War

World War II brought peace and economic prosperity to the Allied nations, which allowed for the fertility rate in North America to increase. This caused an explosion in the population of the U.S. especially, with around 78 million babies born by the end of the 1940s-1960s, according to Colombia Dictionary. Similarly, Canada experienced a surge of 479,000 babies following the 1950s (Henripin, Krotki 1). A large population amounts to a shift in demographics, and subsequently the social system of North America started to change gradually in order to adapt to the new baby boom generation. As a result of a new economic affluence in the continent, North American society became materialistic and consumerism seized a big part of the economy (Owram 309). Children became an important demographic for companies, leading to the toy industry benefitting and expanding (Gillion 5). Technology advanced considerably, too: in the 1950s, the television became a ground-breaking medium that helped people spread ideas, see what was going on in their country and the rest of the world, much like what the printing press did for the Renaissance. Although the post-WWII baby boom only occurred in a few countries, namely the U.S. and Canada, this time period transformed the West and the world immensely—the areas of life that were affected during the baby boom went on to greatly influence later generations and decades due to the change and reform it yielded, which replaced the outdated and unethical traditions of the old West and the world. Prevailing social and political attitudes of the baby boom were much more liberal than they were in the pre-war decades. Numerous social issues found their way into the spotlight, such as women's rights and the sexual rev... ...ame needs as an effect of consumerism on the baby boom generation. The same materialism of the 1950s conceived a new consciousness in the 1960s, equating to new values for the baby boom generation, such as self-actualization, social consciousness and tolerance. During the 1950s, the U.S. achieved the highest standard of living in the world, metamorphosing the working class into the new middle class (Monhollon xvi). The richest generation in North American history and the 21st century has left behind a plethora of valuable lessons that will not be forgotten soon. In conclusion, the baby boom, which lead to a long cycle of prosperity and growth in the post-WWII years is crucial because it redefined the traditional and rigid values people wrongfully harbored in the past and spearheaded dramatic change on a global level, bringing the West and the World closer than ever.

4 Step Process to Contract Law Essay

Question a) Step One The principle of law is that for a valid contract to be formed there must be an agreement reached by both parties. Step Two There are three main elements for the formation of a legally binding contract, intention, agreement and consideration. The requirement that requires discussion here is the existence of an agreement by the parties to enter into a legally binding contract. An agreement means a consensus on at least those essential terms needed for a workable transaction. The process of reaching an agreement is generally analysed as involving an offer and acceptance. Where the offer is a clear indication of the terms upon which a person is prepared to be bound, and an acceptance is assenting to, agreeing, or receiving the terms offered. See more: Basic Economic problem of Scarcity Essay The requirements of an ‘offer’ must be promissory, such as in Placer Development Ltd v Cth (1969) 121 CLR 353 where what the government had said was not a legally enforceable promise, but had appeared to be one. It must be sufficiently complete, and intended to result in a contract if accepted. The requirements of an ‘acceptance’ to exist must be in the same terms of the offer. It cannot still be subject to a condition, such as where it was clear that Cameron had not intended to be bound until a formal contract was prepared and signed, Masters v Cameron (1954) 91 CLR 353. An acceptance must be made while the offer is still in existence. It must be made by a person whom the offer was addressed. If the offer is intended to be made to any person that learns of it then any such person can accept the offer on the stated terms. Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256, where Carlill had read an advertisement offering a reward to anyone who caught influenza after buying the company’s smoke ball. Carlill bought the ball and caught influenza, since the offer was made to ‘the world at large’ it is capable to be accepted by anyone who learns of it, including Carlill. An acceptance must be made in acceptable form. In the case of emails, it is considered to have been received when it reaches an information system designated by the person to whom the email is addressed via s 13 electronic Transactions (Victoria) Act 2000 and equivalent legislation in other stated and territories. For the process of offer and acceptance to result in agreement, the terms of the offer must be accepted without suggesting changes. For example, in Olley v Marlborough Court Ltd (1949) 1 KB 532 Olley had her furs stolen in the hotel, and there was a notice in the room notifying that the hotel was not held accountable for stolen goods. This notice was not part of the agreement as it was not in the initial contract and therefore the hotel was made liable. Step Three The review of whether an agreement has been reached between both parties involves determining the requirements of an offer and acceptance have been met. Firstly, for an offer to exist, it must be intended to result in a contract is accepted. The advertisement made by Games Travel Ltd is not viewed as an offer by the courts because advertisements are not intended to signal a readiness to be bound, but rather an invitation asking customers to make an offer to buy. Secondly, for the requirements of an acceptance to exist, it must be in the same terms of the offer. If the advertisement were to be seen as an offer, the terms agreed on would be $1000 for the tickets and tickets to the finals in swimming, archery and gymnastics. Jon only authorized the payment of $1000 as the terms on the offer expressed. As the terms had changed after he had authorized payments, there were no tickets to the gymnastics, which made the offer invalid. Lastly, for the process of offer and acceptance to result in agreement, the terms of offer must be accepted without suggesting changes. The change from $1000 to $2000 breached this requirement. An attempt to accept an offer on different terms should have been constructed as a rejection of the original offer and the making of a counter-offer. Step Four Due to not meeting the requirements of an ‘offer’ through not being intended to result in a contract if accepted, and not meeting the requirements of an ‘acceptance’ by not being in the same terms of the offer, there is no legal binding agreement between both parties and Jon is not obliged to pay $2000 for the plane tickets as there is no authorization for $2000, rather $1000. Question b) Step One The area of law relevant to this question is the review of a contents of a contract enforced between two parties. Step Two There are particulars to a contract which structure its existence. This includes the importance of terms within the contract, the freedom of contract, statements that do not become part of contract, and terms of contract. Within a contract consideration must be made to the creation of the contract. The terms of the contract define the obligations of the parties. It is by analysing the terms that you can find out what has to be done to discharge those obligations. For example in Cehave NV v Bremer Handelsgesellschaft mbH [1976] QB 44; [1975] 3 All ER 739, the buyer Cehave did not want to accept the delivered goods because they were not in ‘good condition’ although they were in satisfactory condition to perform their purpose which was to be used as animal feed. Freedom of contract is the freedom of individuals to bargain among themselves the terms of their own contracts, without external interference. People can negotiate effectively in their own interest and both parties negotiate from a position of equal strength. Limits included on freedom of contract are illegal undertakings not enforceable, such as anything more than minimal regulations and taxes may be seen as infringements. Policy considerations may limit freedom of contract. There are certain statements that do not become part of the contract but are said in negotiations. This includes puffs, opinions and representations. Puffs are statements of exaggerated praise to excite buyers and encourage sales and are without any real or measurable substance. Opinions are statements of personal views or beliefs and should not be relied on as it may be incorrect. If a person misrepresents their true opinion, their statement is treated as a representation. Representations are statements often made to encourage the other party to enter the agreement, without intending that they be contractual promises. For example Oscar Chess Ltd v Williams [1957] 1 All ER 325, the car dealer sued Williams for breach of contract due to the car age document being false. The courts decided the document was a mere representation rather than a contractually binding promise. The terms of a contract describe the entire contents of a legally enforceable agreement. Terms are ‘express’ when they have actually been declared or definitely stated. There are disagreements over whether particular terms have been included in the contract or not. For example Causer v Browne [1952] VLR 1 the statement on the docket was not seen as contractual terms as it was only an identifying docket. A term may also be ‘implied’ into a contract when that term was intended to be part of the contract without being expressly stated or referred to. It can only be implied if it is obvious that the parties had intended to include the term as part of their agreement. Implied terms must be reasonable and fair, be capable of clear, unambiguous expression and it must not contradict any express terms. In Codelfa Construction v State Rail Authority of NSW (1982) 149 CLR 337 Codelfa tried to claim extra payment for the extra costs incurred due to stopping and starting work overnight. The courts rejected this as there was no such term implied that would see unforeseeable stoppage to work and compensation paid out. A breach of contract that causes loss gives rise to a claim for damages. If sufficiently serious, a breach may justify a claim to damages plus a refusal to accept performance. To evaluate the seriousness of a breach various terms are distinguished and some terms are described as ‘conditions’ and the others ‘warranties’. Conditions are terms of fundamental importance to the agreement, whereas warranties are terms of lesser importance than conditions. In a breach of condition an injured party can terminate contract and/or sue for the damages. Whilst in a breach of warranty the injured party can sue for damages. In Associated Newspapers Ltd v Banks (1951) 83 CLR 322 Bancks, the cartoonist had the right to terminate his contract as the promise to publish Blancks drawing’s on the front page of the comic section was a condition term. Step Three Identifying the content of the contract between Jon and Games Travel Pty Ltd shows that there are express terms that exist within the contract. For example, the two tickets for the price of one, and the tickets to the finals in the swimming, archery and gymnastics. These terms are contractual terms and must be carried out as specified by the agreement. The terms sought throughout the contract are categorised as warranties, as they are not terms of fundamental importance. Such terms are the swimming tickets, where Jon had received men’s event and not the women’s. Also, the ticket price was doubled when charged, the initial contract was $1000 which is a warranty term. Terms that are conditional are the actual flight to the Commonwealth Games in India. Breaches of Warranty terms such as the swimming ticket and $2000 charge would be a breach of contract. In such a case, the remedy available for breaching warranties are to claim for damages only. This would include $1000 which Jon was overcharged. Step Four In conclusion, through analysis of the contents of the contract a breach of warranty has arisen. The remedy of such can include a sue for damages incurred.

Teen Pregnancy Causes Serious Physical And Emotional Problems

Teen pregnancy causes serious physical and emotional problems for adolescent mothers, therefore there should be steps taken to prevent such things from happening. I have a close friend who got pregnant at the age of fifteen. It was a mega crisis for her and her baby. It caused a heartbreaking feud between my friend and her parents, as well as her schooling, leading her to drop out of high school. The emotional stress she gained was harming her body. The baby’s father wanted nothing to do with the poor child or the mother. She had nothing figured out, and all her dreams and aspirations were changing in the blink of an eye. This situation was not only terrible for the mother, but it was a terrible situation for the baby to born into. She ended up keeping the baby, but sadly it was a rough circumstance for her. She ended up staying at another friend’s house to raise the baby, and it has taken her four years to finally be able to provide for her child by herself. No teenag e girl or guy should have to go through something they are not ready for; they are still children. Therefore, as a society, we should educate teenagers on how to prevent teen pregnancy, because doing so would lead to a positive effect and help teens grow to become responsible adults. Furthermore, there are a lot of negative effects of teenage pregnancy, so we should clarify these effects with them. One of the main effects is the emotional stress it puts on a young teenager. Teenage pregnancy puts anShow MoreRelatedHigh School Dating : A Not So Cinderella Story1077 Words   |  5 Pagesdistraction of relationship drama causes teenagers to focus less on things like school. This in turn will cause their grades to suffer. Lower grades mean a smaller chance of getting accepted into colleges, or receiving scholarships. Another problem is the emotional impacts of an ugly breakup. Impacts are long lasting at any age, but especially so in high school. 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