Spread of the US Financial Crisis and Contagion to Europe - Dissertation Example

Globalization has created many advantages in terms of accelerated economic development for third-world countries while at the same time broadening the markets and introducing greater efficiencies for developed countries. Despite the benefits, globalization has also created the phenomenon of the global financial crises and the worldwide economic recession that typically follows it. Before the globalization of the financial system, banking panics were usually contained within individual nations, and faulty national policies had little repercussions beyond the boundaries of that particular jurisdiction. In this day and age of multinational businesses and unified regional and international financial systems, financial and economic crises have become particularly widespread, severe, and sudden, instantaneously crossing borders through the international banks that are invested in countries initially embroiled in the crisis. The weakening of the banks in other countries as a result of the contagion speeds up the spread of the crisis into other economies.
The study is significant because of the persistent nature of financial crises and the phenomenon of financial contagion. Since globalization, financial crises, and contagion have become repetitive, continuing, and constantly evolving. The last great crisis in the US was the Great Depression ushered in by the Wall Street Crash of 1929. The effects of this crisis were largely contained within the US since national economies then were relatively isolated except for international trade, and the speed and volume with which transactions were carried out was slow and low enough to keep the economies sufficiently separated as to prevent any contagion from taking place.
The next significant crisis took place four decades later, in the 1973 oil crisis. The stock market crash that followed caused economic shocks and the devaluation of currencies abroad. Arguably, the slew of financial and economic crises that followed proceeded from this initial crisis, including the 1980s Latin American debt crisis, the Black Monday stock plunge in 1987, the 1989 US Savings and Loan crisis, the 1990 Japanese asset collapse, and the Scandinavian banking crisis, the European Black Wednesday crisis of 1992, the Mexican crisis of 1994, the Asian Financial Crisis in 1997, and the Russian financial crisis of 1998. In the 21st Century, there was the Turkish crisis of 2000 leading to a recession, the Argentine Crisis of 2001 which coincided with the dot-com bubble in the US, the Icelandic financial crisis of 2008, and of course the financial crisis of 2007 and the European sovereign debt crisis in 2010.
This dissertation is premised on the occurrences of these crisis events and links them to the present-day occurrences in Europe and elsewhere in the world. The significant finding that this study aims to contribute is to supplement the empirical data on global financial crises and seek out systemic solutions that may limit the development of future crises.
Several studies examine contagion particularly linked to financial crises. Studies have indicated that contagion is a phenomenon separate and distinct from financial crises, and several contagion events have been noted which were not triggered by crises events.