Author(s):
1. Jelena Tesic, Republic of Srpska, Bosnia and Herzegovina

Abstract:
Global economic crisis that appeared in financial sector in 2007 had adverse impact on pre-crisis trends of international trade at the global level. International trade in 2009 recorded the deepest decrease since the World War II of 12.5% annually, while quarterly drops were sharp, synchronized and sudden, being characterized in the scientific literature as The Great Trade Collapse (Baldwin, Evenett, 2009). The trade was not the cause of the crisis but one of its main consequences as the crisis started in financial sector. But as it very easily spread to the real sector of economy, it is interesting to assess how international trade could have serve as one of the channels of crisis transmission across countries. It would mean that more open countries were more vulnerable to foreign shock. There is highly debated issue in the literature upon the openness and vulnerability with still inconclusive answer (Easterly and Kraay, 1999; Bräutigam and Woolcock, 2001; Jansen, 2004; Cavallo and Frankel, 2004, 2008; Edwards, 2004; Fidrmuc and Korhonen, 2008). For the latest crisis, there has been renewed interest in the role of trade as a channel of crisis’ transmission (Keppel and Woerz, 2010; Ateljevic, Tesic, Petkovic, 2012). The problem upon the relation between openness to trade and vulnerabilities to shocks is very important particularly in the case of small economies because they tend to be more open. Moreover, special case exists also in transitional economies as there is still ongoing process of economic and institutional reforms in these countries. Now, considering the facts that small transitional economies are largely dependent on international trade and that economies of those countries are dominated by small and immature firms and, therefore the extent of vulnerability is supposedly higher, in this study we ask two following questions: 1) What was the role of openness to trade in propagation of the latest crisis in the case of small transitional economies, and 2) What can smaller transitional economies do to reduce its vulnerability to external shocks while maintaining openness and outward-oriented strategies? In this paper, we are particularly interested in 24 small and transitional economies from the Central Europe, the Baltic region, South-eastern Europe, and the Caucasian region focusing on their outward orientation. By the model of multiple regression we quantify the contribution of international trade for the propagation of shock in the case of recent crisis while controlling for number of other significant variables. Our preliminary results indicate that the crisis was not spreading primarily through the channel of international trade but that there were some other important factors of crisis transmission.

Key words:
small and transitional economies, openness to trade, vulnerability to shocks, global economic crises.

Thematic field:
The effect of the 2007-2009 global financial and e

Date of abstract submission:
31.05.2012.

Number of visits:
427

Conference:
REDETE 2012