Globalization and Emerging Markets: With or without Crash?

Philippe Martin and Helene Rey

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets. While trade globalization always makes crashes less likely, financial globalization may make them more likely, especially when trade costs are high. Pessimistic expectations can be self-fulfilling and lead to a collapse in demand for goods and assets. Such a crash comes with a current account reversal and drops in income and investment. Lower-income countries are more prone to such demand-based financial crises. A quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets.

Keywords: JEL F12; F32; F37; F41; O16 (search for similar items in EconPapers)
Date: 2006-12
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Citations: View citations in EconPapers (146)

Published in American Economic Review, 2006, 96 (5), pp.1631-1651. ⟨10.1257/aer.96.5.1631⟩

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Related works:
Journal Article: Globalization and Emerging Markets: With or Without Crash? (2006)
Working Paper: Globalization and Emerging Markets: With or Without Crash? (2006)
Working Paper: Globalization and Emerging Markets: With or without Crash? (2006)
Working Paper: Globalization and Emerging Markets: With or Without Crash? (2006)
Working Paper: Globalization and Emerging Markets: With or Without Crash? (2005)
Working Paper: Globalization and Emerging Markets: With or Without Crash? (2005)
Working Paper: Globalization and Emerging Markets: With or Without Crash? (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00176903

DOI: 10.1257/aer.96.5.1631

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