International Financial Crises - Thailand 1997-1998

Level: Undergraduate | Grade: 2:2 | Approx. Word Count: 1,029

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The aim of this paper is to provide an econometric analysis of the impact that financial crises can have on a specific areas of international trade for a national economy over a predetermined period, and comparing this against the same determinants related to other countries (Berman 2006). The analysis has been based on the previous financial constructs, equations and estimations present in the study conducted by Ma and Cheung (2003). The country of choice for this study is Thailand, with the focus being on the international crisis that occurred between 1997 and 1998. The estimations will be calculated over a five year period (1996-2000), which takes into account the financial performance pre- and post the crisis. The rationale for this timeline has been chosen because, as noted by Ma and Cheung (2003: 14), the span between financial crises of this nation has historically not been “more than three years apart.”

According to Ma and Cheung (2003), the foundation for this particular regression model is loosely based on Newton’s gravity law, which in financial terms suggests that if a shock event occurs, this will be followed by a fall. The aim of gravity regression is to enable the delivery of an empirical analysis of the trade patterns resulting from crisis and examine this in relation to economic size and distance. Although the model can be expanded to take account of non-financial data, which may include trade barriers, policies and population, these are beyond the remit of the current paper. The selected regression model applied for the current analysis extends the gravity formula to take account of impact of specific financial indicators, such as a currency and/or banking crisis, and estimate the impact this has on the country’s trade, both of which occurred in Thailand during the period under review. For comparison purposes, a cross-section of ten diverse countries were selected