Friday, April 12, 2013

Trade and international growth

A crisp analysis of how international trade impacts growth is in this brief summary on the relationship in Investopedia titled "The Effect of Trade on International growth".It analyses the interdependency of international trade especially in the context of global supply chain - an interdependency that can make or mar a country's economy.
The greatest risk to global trade is the interconnectivity that trade creates. Businesses and economies are increasingly connected, making scenarios in which supply or financial shocks can quickly spread from one region to another more likely. The factor precipitating the bank crisis in Cyprus was the exposure of Cypriot banks to Greek sovereign debt, but that same exposure had caused a financial contagion long before Cyprus looked for a bailout. The disaster at Japan’s Fukushima Daiichi nuclear reactors not only caused a disruption to the global supply chain, but also caused trade to and from the world’s third largest economy to hiccup.
However what I found interesting is that many a times the majority of trade is conducted within the region itself - the example of Europe a classic case with 71% of its international trade being within Europe.


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