Effects of the Financial Crisis on International Trade

Economic globalization has caused diverse national economies to become closely related. International trade is the main channel to cause or show economic correlation and also to spread financial crises between countries. Therefore, measuring changes in international trade is a direct way to measure the impact of financial crises. By comparing and quoting the classical bank runs theory and gravity model, this paper firstly analyzes the theoretical effects of financial crises on international trade. It then uses bilateral trade data and macroeconomic data from 2008 for twenty selected countries to perform empirical research around these effects. The major findings are that financial crises have a significant impact on international trade, and that the effect of foreign capital flows is greater than that of investment demand. Furthermore, financial crises have a lag impact on international trade.