Global Financial Crisis: The Role of Export, Competition and Finance

The Global Financial Crisis (GFC) was a temporal phenomenon of intense turmoil in international financial markets and banking systems, spanning from mid-2007 to early 2009. The crisis was sparked by the collapse of the U.S. housing bubble and the massive failure of subprime mortgage loans. Due to the extensive interconnections of the global financial system, it rapidly spread beyond the United States, resulting in a worldwide economic meltdown that had lasting impacts on economies, employment, and financial regulations. In this background, this paper presents a theoretical framework to study the significant role of foreign direct investment and export in limiting the impact of global financial crisis. The study further reinforces its theoretical findings through comprehensive empirical investigation of the crisis-impacted economies. The theoretical model is based on Cobb-Douglas function with market capitalization of listed domestic companies as dependent variable and foreign direct investment and competition-augmented export as independent variables. The findings of the study strongly determine the positive influence of FDI and export on financial crisis. However, the theoretical framework in the present paper also helps in determining the critical values of FDI and export at which global financial crisis is minimized. The paper thus provides directions for reviving the economies from the grips of financial distress by adopting FDI and export driven policies.

Global Financial Crisis, Foreign Direct Investment, Export, Industrial Performance JEL Classification: G0, A1

1. Allen, F., & Gale, D. (1998). Optimal financial crises. Journal of Finance, 53, 1245–1284. [Google Scholar] [Crossref]

2. Alshubiri, F. (2021). The stock market capitalisation and financial growth nexus: an empirical study of western European countries. Future Business Journal, 7(1), 1-20, Springer. [Google Scholar] [Crossref]

3. Atajanov, T.U.U., & Yi, C.D. (2023). The Panel Analysis of the Effects of FDI and Export on the Economic Growth of CIS Countries. Journal of International Trade & Commerce, 19(1), 143-163. [Google Scholar] [Crossref]

4. Bryant, J. (1980). A model of reserves, bank runs, and deposit insurance. Journal of Banking and Finance, 4, 335–344. [Google Scholar] [Crossref]

5. Cavdar, S.C., & Aydin, A.D. (2015). An Empirical Analysis for the Prediction of a Financial Crisis in Turkey through the Use of Forecast Error Measures. Journal of Risk and Financial Management, 8, 337354. [Google Scholar] [Crossref]

6. Chari, V.V., & Jagannathan, R. (1988). Banking panics, information, and rational expectations equilibrium. Journal of Finance, 43, 749–760. [Google Scholar] [Crossref]

7. Diamond, D.W., & Dybvig, P.H. (1983). Bank runs, deposit insurance, and liquidity. Journal of Political Economy, 91, 401–419. [Google Scholar] [Crossref]

8. Dornean, A., Isan, V., & Oanea, D.C. (2012). The Impact of the Recent Global Crisis on Foreign Direct Investment. Evidence from Central and Eastern European Countries. Procedia Economics and Finance, 3, 1012 – 1017, Elsevier. [Google Scholar] [Crossref]

9. Friedman, M., &Schwartz, A.J. (1963). A Monetary History of the United States: 1867–1960. Princeton University Press, Princeton, NJ. [Google Scholar] [Crossref]

10. Gorton, G. (1988). Banking panics and business cycles. Oxford Economic Papers, 40, 751–781. [Google Scholar] [Crossref]

11. Jacklin, C.J., & Bhattacharya, S. (1988). Distinguishing panics and information-based bank runs: welfare and policy implications. Journal of Political Economy, 96, 568–592. [Google Scholar] [Crossref]

12. Kaminsky, G.L., & Reinhart, C.M. (1999). The twin crises: the causes of banking and balance-of payments problems. American Economic Review, 89, 473–500. [Google Scholar] [Crossref]

13. Kindleberger, C.P. (1978). Manias, Panics, and Crashes: A History of Financial Crises. Basic Books, New York, NY. [Google Scholar] [Crossref]

14. Krugman, P. (1979). A model of balance-of-payments crises. Journal of Money, Credit, and Banking 11, 311–325. [Google Scholar] [Crossref]

15. Krugman, P. (1999). Balance sheets, the transfer problem, and financial crises. International Tax and Public Finance, 6, 459–472. [Google Scholar] [Crossref]

16. Ma, Z., & Cheng, L.K. (2003). Effects of Financial Crises on International Trade. Working Paper 10172, NBER Working Paper Series. [Google Scholar] [Crossref]

17. Mamata, T. (2011). Impact of Global Financial Crisis on FDI Flows in India – A Special Reference to Housing sector. International Journal of Trade, Economics and Finance, 2(1). [Google Scholar] [Crossref]

18. McKibbin, W.J., & Stoeckel, A. (2009). The Global Financial Crisis: Causes and Consequences. Working Papers in International Economics, No. 2.09. [Google Scholar] [Crossref]

19. Mohan, R. (2009). Global Financial Crisis: Causes, Impact, Policy Responses and Lessons. Working Paper No. 407, Stanford, Center for International Development. [Google Scholar] [Crossref]

20. Nguyen, P.D., & Minh, T.T.N. (2025). Determinants of market capitalization of listed firms: evidence from an emerging country. Journal of Economics and Development, 27(1). [Google Scholar] [Crossref]

21. Obstfeld, M. (1996). Models of currency crises with self-fulfilling features. European Economic Review, 40, 1037–1047. [Google Scholar] [Crossref]

22. Portes, R. (2009). Global Imbalances. London Business School. [Google Scholar] [Crossref]

23. Reinhart, C.M., & Rogoff, K.S. (2008). Banking Crises: An Equal Opportunity Menace. NBER Working Paper 14587. [Google Scholar] [Crossref]

24. Reinhart, C.M., & Rogoff, K.S. (2009). This Time is Different: Eight Centuries of Financial Folly, Princeton Press [Google Scholar] [Crossref]

25. Sakthivel, P., VeeraKumar, K., Raghuram, G., Govindarajan, K. & Anand, V. (2014). Impact of Global Financial Crisis on Stock Market Volatility: Evidence from India. Asian Social Science, 10(10), Canadian Center of Science and Education. [Google Scholar] [Crossref]

26. Saleh, E.A. (2023). The effects of economic and financial crises on FDI: A literature review. Journal of Business Research, 161(C), Elsevier. [Google Scholar] [Crossref]

27. Sharma, A.K., & Seth, N. (2011). Testing Weak form Market Efficiency: A Study of Selected Indices of National Stock Exchange. IIMS Journal of Management Science, 2 (2), 215-229. [Google Scholar] [Crossref]

28. Thalassinos, E., Pintea, M., Iulia, R.P. (2015). The Recent Financial Crisis and Its Impact on the Performance Indicators of Selected Countries during the Crisis Period: A Reply. International Journal in Economics and Business Administration, III (1), 3-20. [Google Scholar] [Crossref]

• The Correlation of Marketing Strategies and Financial Performance of Motor Parts Businesses in the City of Mati
• The Role of Blockchain-Based Smart Contracts in Enhancing Financial Transparency and Efficiency in the Emerging Market
• Exploring Intention among Universiti Teknologi Mara Terengganu Community to Donate into Education Waqf Fund
• Utilizing AHP Method to Rank Preference of Waqf Fund Usage for UiTM Terengganu, Malaysia
• The Influence of Portfolio Diversification on Financial Performance: Evidence from Listed Banks on the Ghana Stock Exchange