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The Global Financial Crisis and Trade Prospects in Small States

image of The Global Financial Crisis and Trade Prospects in Small States

This is the first study to look at the trade effects on small states of the current global slowdown. Export industries in these countries have been affected at least as much as those of other developing countries. Given their reliance on trade, this means that the overall economic impact on small states may be greater than for other developing countries, all the more so for those countries exporting minerals and fuels, and ‘luxury’ goods and services, such as beef and tourism. The authors suggest a number of policy responses for governments of small states which may help to address the issues that arise.

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Conclusions

For developing countries, trade is a key transmission mechanism of the current global financial crisis. The effects of the crisis on trade are likely to play out through falling demand (due to falling incomes), increased trade protectionism, mainly taking nontraditional forms, and drying up of finance, including trade finance. The adverse effects on trade are possibly even more important for small states, which are heavily dependent on trade, given their need to specialise in a handful of productive activities. This study is the first to look specifically at the trade effects of the current global slowdown on small states. It has shown that small states’ exports seem to be affected at least as much as other countries’ exports. Given their reliance on trade, this means that the effects on their economies may be more significant than the impact on the economies of other developing countries.

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