The Great Depression And The Decline Of Trade

The Great Depression is an example of how badly the world economy could decline as it was the longest and one of the most globally spread depression that took place during the 20th century. It took it’s roots from the United States in the 1930s and spread across the whole world, lasting until 1941. On September 4th, 1929, the stock prices across all US started falling drastically and in a period of just a month, on October 29 of the same year, the stock market crashed. In the next 3 years the GDP across the world fell by 15%, which had devastating aftereffects for some economies. The international trade rate fell by over 50%, unemployment rose to 25% in the US, while in some countries it reached up to 33%. To this day there are no proved causes …show more content…
Many analyses have shown that loss of exports via linkages have had an important role in internationalizing the Great Depression, as well as the Crisis of 2007. In fact, during the first year of both downfalls the rate of real exports fell by approximately 20% and the global output reduced on average by 4%. Despite the similarities between these two crises, the causes for them were not the same. During the 2007 crisis uncertainty and changes in the structure of trade seem to be the main reasons in the decline of trade, however, during the Great Depression it was mostly caused by income declines and trade barriers, typical for that century. One big difference between the two crises is, that during the Great depression the trade has already started to recover, while the situation still continued to get worse. According to Grossman and Meissner (2010), “Today’s Great Recession has produced an almost equally impressive trade decline in its first year. The fact that trade is rebounding quickly is cause for optimism and a reminder that some lessons have been learned but challenges remain.” (p. …show more content…
During the 1930s a huge wave of banking crisis occurred in the US. Between 1929 and 1933 over 10000 commercial banks of existing 25000 stopped working. Mitchener (2004) analyses, if differences in bank supervision and regulation in different states of the US affected the regional variation in bank suspensions during the Great Depression. Some US states experiences higher numbers of bank suspensions and failures in comparison to other states. Three quarter of all the banks that were suspended were operating under different regulations, depending on the state they were located