Credit Conditions and Trade during the Global Financial Crisis
International trade was one of the many victims of the 2009-2010 global financial crisis. World trade flows declined by up to 9% in 2009, a third more than the 6% drop in industrial output and three times the 2.5% decrease in per-capita income. Countries with smaller economies suffered even more, with some showing a 30% decrease in the second half of 2008.
A 2010 paper by Stanford University and Singapore Management University, “Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis,” looks at the effect that credit tightening had on international trade during the 2008-2009 global financial crisis using data on U.S. imports.
Key findings are:
- If governments had not lowered lending rates as a response to the crisis, trade flows would have been reduced by 26% more.
- Trade flows would have been 30% higher than they actually were had government policies had a more immediate effect.
- Countries with higher interbank rates and tighter credit markets exported less to the United States.
- Exports of financially dependent industries were more sensitive to the cost of external capital than exports of less dependent industries. This sensitivity intensified during the crisis.
Overall, there are potential gains from policy interventions targeting access to private credit. The paper sheds light on the role of such policies in mitigating the uneven impact of the crisis on trade flows across countries and sectors.
Tags: economy, ethics, financial crisis
Note to instructor: The suggested assignments are designed for flexibility. They can be used in whole or part and can be adapted to a particular task -- for example, the newswriting assignments could be applied to the writing of the headline, the lead, the nut graph or the full story. Material from the assignments could also be combined with other material, for example, in the writing of a background, feature or local-angle story.
Read the Stanford University and Singapore Management University study titled "Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis."
- Summarize the study in fewer than 40 words.
- Express the study's key term(s) in language a lay audience can understand.
- Evaluate the study's limitations. (For example: Do the results conflict with those of other reliable studies? Are there weaknesses in the study's data or research design?)
Read the issue-related New York Times article titled "Working Without a Standard Playbook, the Fed Plans Its Moves on Rates."
- If you were to rewrite the article based on knowledge of the study, what key changes would you make?
- Write a lead (or headline or nut graph) based on the study.
- Spend 60 minutes exploring the issue by accessing sources of information other than the study. Write a lead (or headline or nut graph) based on the study but informed by the new information. Does the new information significantly change what one would write based on the study alone?
- Interview two sources with a stake in or knowledge of the issue. Be prepared to provide them with a short summary of the study in order to get their response to it. Write a 400-word article about the study incorporating material from the interviews.
- Spend additional time exploring the issue and then write a 1,200-word background article, focusing on major aspects of the issue.