The imbalanced game of economics in times of international turbulence.

What is it about?

If there is one thing that economic history keeps reminding us about, it is that times of severe turmoil are a recurrent feature in the international economic landscape. With significant certainty, we can expect them to come time and again with varied intensities, duration and geographic extents although, unfortunately, nobody can say when or where. Factors as international conflicts, industrial disruption (as oil crises), deficiencies in risk management (as in the financial crisis), economic policy (as in debt crises) or even others originated in nature (COVID-19) have had important effects on the economic development of regions and on the global economy. However, when such events happen, the cards are far from being evenly distributed. Certain economic regions are more vulnerable to the impacts of that turbulence and its shock waves which, for some regions, are long-lived. Our new article, published in the International Journal of Finance and Economics, helps to understand key features of those regional imbalances measured as the potential size, duration and geographic extent of the impacts of representative scenarios of economic disruption in financial markets, economic performance, oil prices and fiscal balances. Considering current interlinkages between economies in the Organisation for Economic Cooperation and Development (OECD), we analysed the effects of disruptive scenarios originated in specific regions and spread across the rest of the economies in the group. Among key contrasts, we found a significant divide between the effects on north and south countries in the Euro-area, notorious resilience in the Asia-Pacific region and the potential of the North American region (formerly known as NAFTA) to drive generalised (i.e. world-wide) turbulence to which the repercussions across the other OECD sub-regions are also described.

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Photo by Martin Sanchez on Unsplash

Photo by Martin Sanchez on Unsplash

Why is it important?

Thanks to its approach to the international economy as an integrated system, where networks are formed on the bases of main factors as trade, finance and migration, this research’s findings are important to understand the contrasts between the impacts of common economic and financial disturbances and to provide policy-makers with additional insights from a wider, international perspective for the benefit of national and internationally-coordinated policies. Understanding these international exposures is of particular importance in times of generalised disturbances when policy-makers need to formulate their responses not only considering the effects on their own economies but also those on their significant international counterparts.

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