Can large trade shocks cause crises? The case of the Finnish-Soviet trade collapse

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Title: Can large trade shocks cause crises? The case of the Finnish-Soviet trade collapse
Author: Gulan, Adam ; Haavio, Markus ; Kilponen, Juha
Series: Journal of International Economics
Series volume: 131
Series number: July
Year of publication: 2021
Publication date: 24.4.2021
Published in: Published in BoF DP 9/2019 http://urn.fi/URN:NBN:fi:bof-201906051219
Keywords: kansainvälinen kauppa; häiriöt; kriisit; lama; taloudelliset kriisit; ulkomaankauppa; Neuvostoliitto; Suomi
JEL: E32; E44; O52
Other keywords: trade shock; great depressions; small open economy; Finland; international trade; foreign trade; Soviet Union; economic crisis; economic depression
Abstract: We study the macroeconomic consequences of a major trade disruption using the example of the Finnish–Soviet trade collapse in 1991. This is a rare case of a well–identified large trade shock in a developed economy. We find that the shock significantly affected Finnish output. Even so, the trade collapse was insufficient to generate an all–out crisis, and accounts for only a part of the Finnish Great Depression (1990–1993). We show that shocks originating domestically played a major role throughout the depression.


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