International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks

32 Pages Posted: 22 May 2009 Last revised: 5 Nov 2009

See all articles by Hubert Escaith

Hubert Escaith

Aix-Marseille University (Aix-Marseille School of Economics); Bournemouth University

Fabien Gonguet

Ecole Polytechnique, Paris

Date Written: May 22, 2009


The article analyses the role of international supply chains as transmission channels of a financial shock. Because individual firms are interdependent and rely on each other, either as supplier of intermediate goods or client for their own production, an exogenous financial shock affecting a single firm, such as the termination of a line of credit, reverberates through the productive chain. The transmission of the initial financial shock through real channels is tracked by modelling input-output interactions. When banks operate at the limit of their institutional capacity, defined by the capital adequacy ratio, and if assets are priced to market, then a resonance effect amplifies the back and forth transmission between real and monetary circuits. The paper illustrates the proposed methodology by computing a supply-driven indicator and indirect demand-driven impacts on five interconnected economies of different characteristics: China, Japan, Malaysia, Thailand and the United States.

Keywords: international supply chains, monetary circuit, real linkages, transmission channels of financial shock, Asian International Input-Output Tables

JEL Classification: C67, F23, F36, G01, L16

Suggested Citation

Escaith, Hubert and Gonguet, Fabien, International Trade and Real Transmission Channels of Financial Shocks in Globalized Production Networks (May 22, 2009). Available at SSRN: or

Hubert Escaith (Contact Author)

Aix-Marseille University (Aix-Marseille School of Economics) ( email )

Chateau La Farge
Route des Milles
F-13290 Les Milles, Provence
+33(0)4 42914834 (Phone)
+33(0)4 42389585 (Fax)

HOME PAGE: http://

Bournemouth University ( email )

Fern Barrow
Poole BH12 5BB, Dorset BH8 8EB
United Kingdom

Fabien Gonguet

Ecole Polytechnique, Paris ( email )

1 rue Descartes
Paris, 75005

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics