Has Gulf Area Less Exposure to Financial Crisis - Research Paper Example

?The Last Financial Crisis 2007-2009 Has Many Implication On Different Markets , However There Are Some Arguments That The Gulf Area Has Less Exposure To This Crisis, Do You Agree Or Not And What The Impact ( If There Is Any) On Qatar’ And Other GCC Financial Markets Abstract The research report intends to clearly identify the major influencing factors of the widely renowned financial crisis 2007-2009, which extensively affected the global economies irrespective of economically stabled nations. With reference to the major influencing factors of the global financial recession, the report also aims to critically assess the implication of the financial crisis in Qatar and other associated GCC countries. Additionally, the report also demonstrates the major tools that led the countries to evade the drastic impact of the global financial crisis during the period 2007-2009. Therefore, the overall coursework of the research incorporates a qualitative research approach through analyzing different scholarly based articles, peer-reviewed journals and governmental reports in order to evidently justify the impact of financial crisis in Qatar and other GCC countries. The findings of the research identifies that the financial performance of Qatar and other GCC countries were significantly affected. The real estate and construction industries belonging to most of the GCC countries were highly affected by the US financial recession 2007-2009. However, the conventional investment system along with the lower exposure to sub-prime assets has helped the GCC nations to avert financial risks from the crisis. Table of Contents Abstract 2 2 1. Introduction-Background 4 2. Literature Review 4 3. Research Objectives and Research Questions 7 4. Research Design 9 5. Data Collection and Analysis 10 5.1 Data Collection 10 5.2 Analysis 10 6. Ethical Consideration 11 7. Analysis 12 8. Conclusion 15 References 16 1. Introduction-Background The invasion of the last financial crisis 2007-2009 has been ever considered to impose considerable impact on the economic conditions of global nations. The crisis that took during the period 2007 to 2009 had considerably affected the global economy and made dramatic changes to the financial conditions throughout diverse regions of the globe. The global financial turmoil had radically impacted most numbers of the developed countries across different regions of the world. During the financial turmoil period, the countries associated within Golf Council Corporation (GCC) have also been experienced to get affected in terms of real Gross Domestic Product (GDP) growth rate along with annual consumer inflation rate (Nanto & et.al, 2008). With reference to the major consequences that experienced by the GCC nations, the research report tends to critically assess the major factors affecting the financial condition and analyze their radical implications that devastated the economic position of the GCC countries. The report also tends to conduct literature analysis through highlighting major economic theories, historical influences and assumptions relating to the invasion of the economic crisis during the period 2007 to 2009. 2. Literature Review In relation to determine the severe impact of the last financial crisis 2007-2009, numerous researches and analyses have been made concerning the identification and assessing the consequences of the influencing factors that led towards the last financial crisis 2007-2009. Various literatures depict number of issues that significantly define the root cause of financial crisis along with their potential implications that further led the GCC countries to experience radical changes in their respective economic conditions. Therefore, the literature review section would be incorporated with analyzing various scholarly based articles, reports and internet related sources along with their findings in order to evaluate the major impact of financial crisis on the GCC regions. According to the observation of Cozzi (2009), the aspects including low household saving rates along with debts, considerable low rate of interests and uprising banking systems are few of the major factors leading towards generating severe economic crisis to the US along with its global partners. In this regard, the major trade relation between diverse GCC nations and the US based corporations devastated by a greater extent (Cozzi, 2009). In relation to determine the trade relation between the US and Qatar, it can be recognized that an extensive collaboration prevails between these countries. In this regard, the report published by the U.S. Department of State (2013) critically stated that the US upholds a strong trade association with Qatar through refurbishing more than 120 numbers of marketers in the Qatari trade markets. It has also been identified that the US is one of the major suppliers for the oil and gas business industry of Qatar. Moreover, the continuous development of exporting petrochemical products, agricultural, machineries, vehicles, aircrafts and medical equipment are the major business industry of the US to trade in different locations of the Qatari business markets (U.S. Department of States, 2013). Therefore, it can be affirmed that Qatar has faced critical economic challenges during the last financial crisis 2007 to 2009. In relation to the study of Acharya and et. al., (2009), the emergence of the financial crisis can be traced during the year 2006 at the time when the US housing market declined. The aspect of mortgage refinancing demonstrates the fact that the prices related to housing market would likely to increase. Thus, the disintegration in the housing market represents a flow of future non-payments in the subprime areas (Acharya & et. al, 2009). The consequences of this tragic downfall of housing market imposed severe impact upon different developed nations along with various GCC regions in the form affecting their respective financial interests. In this context, the major investors such as UAE and Qatar have experienced significant downfall due to the reason of devastating housing US housing markets that took place due to the last financial crisis of 2007 to 2009 (Acharya & et. al., 2009). Moreover, the research of Adrian and Shin (2010) have also critically identified that the households and the institutions such as pension funds along with life insurance companies and mutual funds are the ultimate lenders investing in support of households. It is worth mentioning that credits will be offered to the borrowers directly from the lenders, as in the case with municipal bonds, corporate bonds as along with treasury securities. It is quite significant to comprehend the operation of financial intermediation and also the way in which the emergence of banking systems took place during the period 2007-2009. Moreover, it is also vital to generate a flexible financial system along with short and long-term crisis management standards in order to recognize the factors that eventually led towards the last financial crisis 2007-2009 (Adrian & Shin, 2010). Correspondingly, the countries including UAE, Qatar and Oman have faced certain critical challenges due to lower amount of export and import activities made with the US firms. The business industries including the exporters dealing with oil and gas along with the industries associated with dealing machineries, agricultural products and aircraft trade performance of Qatar got affected or faced major threats due to the occurrence of 2007-2009 financial crisis (Khamis, 2010) Additionally, Brunnermeier and Oehmke (2010) noted that mismatch of maturities is one of the vital issues to generate the last financial crisis 2007 to 2009. In order to deal bilaterally with numerous creditors, the financial institutions might not be able to generate an effective and a comprehensive maturity structure when entering debt contracts with their respective creditors. Therefore, the maturity structure must remain in the state of equilibrium. A contractual externality between long and short-term debt holders can lead to an uneconomical shortening of maturity structure because the financial institutions transact with the creditors on a mutual basis and unable to presume to a cooperative maturity formation (Brunnermeier & Oehmke, 2010). Therefore, the significant mismatch in the maturity structure had also led Qatar and other GCC nations to face significant imbalance of economic conditions. In order to avert economic crisis, various methodologies can be apparently observed to be applied by the government. In this regard, Brookings (2012) have significantly stated that the Emergency legislation passed by the U.S. assembly in the year 2008 and early 2009 intended to address and mitigate the complexities that rise by the considerable downfall of economic conditions. 3. Research Objectives and Research Questions The vicious implications of the last financial crisis 2007-2009 have been witnessed to impact more or less to each global nation across the world. In relation to determine the impact of this especially upon the GCC regions, it can be affirmed that these regions have also been affected by the drastic fall of the US housing market along with other major concerns leading to the crisis. However, a few of the studies demonstrated that the impacts of this crisis on Qatar and other GCC countries have been considered to relatively lower as compared to the other global countries. Moreover, major studies across different global regions have also critically argued regarding the negative influence of the last financial crisis 2007-2009. Nevertheless, it has been observed that the studies have provided adequate evidence regarding the financial position of Qatar and other GCC nations along with effective measures that were taken during the period of financial recession. Therefore, the primary objective of this study is to critically argue the statement regarding that the gulf area has less exposure to the last financial crisis 2007-2009. In order to attain this particular research objective, the following major aspects would require to be taken into concern. Analyzing the financial performance of Qatar and other GCC countries during the period 2007-2009 Identifying the affiliation prevailing between Qatar and other GCC countries with the financial performance of the US Critically identifying and assessing the impact of major factors leading to financial crisis and their impact on Qatar and other GCC nations With regard to fulfill the primary objective of this research study, the justification and the assessment process would require critically analyzing the arguments that the gulf area such as Qatar and other GCC financial markets have less exposure to this crisis. Therefore, in order to meet the desired objectives of the research, the overall study would also require a set of research questions. In this context, the following research questions will be adhered in order to critically attain the aforesaid goals of the research study. Identify the major impact of financial crisis 2007-2009 on global financial markets Determine the major influencing factors of the financial crisis impacting Qatar and other GCC countries Recognize the major affected areas of Qatar and other GCC countries that faced challenges in the crisis period Critical justification of the impacts leading to financial crisis and their appropriate justification in the context of Qatar and other GCC countries 4. Research Design With the aim of achieving the desired research objective, a qualitative approach through critically analyzing different literatures relating to the subject has been taken into concern. This particular qualitative research approach would certainly enable to clearly identify the major impact of the financial crisis 2007-2009 on the global economic structure irrespective of countries and territories. Moreover, the approach would also provide adequate support in clearly identifying the major influencing factors and their impacts on the financial performance of Qatar and other GCC nations. The methodology would further focus on analyzing relevant case examples that would enable to determine the impact of financial crisis 2007-2009 on Qatar and other GCC countries. In addition, the approach would also focus on demonstrating the drastic impact on international trade through revealing the hurdles faced by the multinational corporations from developed regions along with the countries underneath GCC. 5. Data Collection and Analysis 5.1 Data Collection The primary objective of the data collection process is to obtain adequate and relevant information and manage effectively in line with the objectives of the research. With respect to critically argue the impact of financial crisis during the year 2007-2009 on Qatar and GCC countries, the data collection process is highly focused on gathering information from different scholarly articles that can be retrieved from different secondary sources such as web, book and online journals along with reports. The integration of secondary sources in data collection process has also assisted in gathering adequate academic information about the key factors leading to financial crisis along with the challenges faced by the financial sector of Qatar and other GCC countries. Moreover, the collection process would also enable the process of obtaining valid information from different scholarly sources including libraries, academic articles, peer-reviewed journals and web-based or online libraries. 5.2 Analysis The data analysis process of this particular research study is highly focused on critically analyzing the collected data by taking into concern the approach of an effective qualitative methodology. In order to attain the above depicted research objective along with the research questions, the qualitative methodology has been incorporated with conducting an in-depth analysis of different financial factors leading to the last financial crisis and its impact on Qatar and other countries within GCC. Therefore, the arguments relating to the impact of financial crisis to Qatar and other GCC countries have been critically discussed by taking into concern the major implications of the last financial recession. With respect to the data collected from different secondary sources, it has been clearly identified that considerable low household saving rates and debts, extensive low rate of interests and uprising banking systems are few of the major factors leading the last financial crisis 2007-2009. The factors eventually imposed drastic impact on the global countries that were allied with the financial performance of the US. 6. Ethical Consideration In order to maintain adequate relevance along with validity of the overall research study, the ethical issues associated with data collection and analysis functions have been highly prioritized. In this regard, the overall research study has been focused on maintaining proper dedication along with commitment through avoiding any sort of biasness and individual or group interests. The methodology along with the applied procedures in the research study has been highly considered in accordance with the relevant ethical guidelines and principles. With regard to the data collection process of the study, the information has been gathered from different peer-reviewed journals, governmental sites along with online-library sources in order to evade immateriality of the research objective. Moreover, the extensive economic affiliation prevailing between the US and Qatar regarding the inward along with the outward trade functions has also been identified to get affected from the last financial crisis. However, the happening of the last financial crisis 2007-2009 imposed extensive impact especially on the trade functions of the US with Qatar and various other GCC countries. Correspondingly, Qatar and other GCC countries have also faced similar crisis due to the drastic impacts imposed on their major export activities such as oil and natural gas, hydro-carbon, along with aluminum, sulphur and fertilizers among others. The recession or the crisis has resulted into dramatic downfall of the major export activities and significantly impacted on the exchange rate, annual household income along with GDP growth rate of Qatar and GCC regions. According to the financial performance of Qatar including different trade industry, a considerable decline in the financial position can be viewed to face by the country during the period 2007 to 2009 (Qatar Statistics Authority, 2012). In accordance with the growth structure in the annual GDP growth, the financial performance of Qatar has experienced significant advancement from 18.6% in the year 2006 to 26.8% in the year 2007. However, due to the dramatic fall down of the US housing market, the growth rate of annual GDP of Qatar also declined to 17.7% in the year 2008. Additionally, the inflation rate of Qatar had also affected the standing of the nation, which has been identified as -4.9% as estimated during the year 2009. In this context, it can also be stated that the growth in national income of the country also got affected during the economic recession period. Correspondingly, during the period 2007 to 2009, the national income, GDP growth rate along with other economic dimensions reflect the decline of various GCC countries in their economies that resulted due to the occurrence of the last financial crisis (Global Finance, 2012). 7. Analysis In order to critically assess the major influencing factors and justify the implications of the US financial crisis on Qatar and other GCC financial markets, related information has been obtained through retrieving information from various scholarly based articles, governmental reports and peer-reviewed journals. With reference to the information procured from different secondary sources, number of factors influencing the last financial crisis 2007 to 2009 can be identified. In this context, a few of the major and widely accepted influencing factors leading to the crisis have been discussed in the following section. According to the comprehensive understanding of the causes leading to 2007-2009 economic recession, different scholars have critically demonstrated numerous factors leading the financial crisis. In relation to the study of various analyses, surveys and reports, it has been identified that the significant outburst of national debt, which has been estimated as 140% higher than the GDP rate during the year 2005 is one of the primary causes of the crisis. This particular scenario had impacted the financial service providers along with their counterparts associated with providing financial services to the overseas nations and resulted drastic invasion for the foreign investors. Besides, the scenario had also alleviated the US housing market into a major debt position and negatively impacted upon the performance of the US banks, investment service providers along with hedge fund investors. In this context, the financial performance of Qatar and other GCC nations have been negatively affected, as the countries had strong investment along with well-built trade relation with the US markets (Blanchard, 2012; Acharya & et. al., 2009). However, the limited exposure to subprime resources has significantly empowered Qatar and other GCC nations to avoid the drastic implications of the financial crisis. Moreover, according to various observations of the scholarly based articles, it can be viewed that it was the construction and loans made against the real estate industry that got affected from the last financial crisis 2007-2009. With this concern, it can be stated that the last financial crisis 2007-2009 has extensively impose considerable impact on the real estate and the construction industry of the GCC countries. Additionally, it has also been apparently observed that the conventional process in lending, savings mobilization and less intervention in the global financial markets have also provided adequate support to Qatar and other GCC nations to reduce a minimum portion of threat from the happening of the last financial crisis 2007-2009 (Khamis, 2010). 8. Conclusion Based on the above analysis, it can be affirmed that the last financial crisis 2007-2009 imposed considerable impact upon the global economy. With reference to the analysis made in the above section, number of influencing factors leading to fuel the emergence of financial crisis into different geographical locations even Qatar along with the other GCC nations have been apparently observed. Although the compliance of conventional investment principles along with limited exposure to subprime resources has significantly empowered the GCC nations to avert threats, the countries have further witnessed to face radical changes in the annual income along with trade difficulties with the US aftermath the recession. The use of qualitative methodology in the research has substantially supported to obtain various relevant and crucial financial statements in order to justify the negative influence of the last financial crisis of 2007-2009 in Qatar and other GCC nations. In relation to the in-depth understanding of the major influencing aspects leading to the financial crisis, it has been clearly observed that the countries in the GCC nations have faced the challenges through their financial exposure in the subprime resources and also the real estate industries that significantly experienced radical threats with the downfall of the US housing market. 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