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Concerns about deglobalization in current crisis are overblown, says Dallas Fed's Economic Letter

For immediate release: November 9, 2009

DALLAS—Concerns that the current financial crisis may lead to a reversal of globalization are in many ways overblown, according to the latest issue of the Dallas Fed's Economic Letter.

The sharp falloff in international trade in the past two years is more attributable to the scale of the financial crisis and its impact on incomes around the world rather than to deglobalization, say Mark A. Wynne and Erasmus K. Kersting in "Trade, Globalization and the Financial Crisis."

"Trade growth is a necessary but not sufficient condition for globalization," Wynne and Kersting write. "Declining trade is likewise a necessary but not sufficient condition for deglobalization."

Abnormally deep declines in world trade may have been the result of interruptions in trade finance caused by the financial crisis, the authors find.

Wynne is vice president and director of the Dallas Fed's Globalization and Monetary Policy Institute, and Kersting is a research associate at the institute and visiting assistant professor at Southern Methodist University.

For more information on the Dallas Fed, visit www.dallasfed.org.

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