Working Paper: CEPR ID: DP7590
Authors: Mary Amiti; David E. Weinstein
Abstract: A striking feature of many financial crises is the collapse of exports relative to output. In the 2008 financial crisis, real world exports plunged 17 percent while GDP fell 5 percent. This paper examines whether the drying up of trade finance can help explain the large drops in exports relative to output. This paper is the first to establish a causal link between the health of banks providing trade finance and growth in a firm?s exports relative to its domestic sales. We overcome measurement and endogeneity issues by using a unique data set, covering the Japanese financial crises of the 1990s, which enables us to match exporters with the main bank that provides them with trade finance. Our point estimates are economically and statistically significant, suggesting that trade finance accounts for about one-third of the decline in Japanese exports in the financial crises of the 1990s.
Keywords: exports; financial crisis; financial shocks; Japan; trade finance
JEL Codes: E32; E44; F40; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bank health (G21) | Export growth (F43) |
| Bank health (G21) | Domestic sales (F19) |
| Decline in bank health (F65) | Future export growth (F17) |
| Bank health (G21) | Export performance (E23) |
| Financial shocks (F65) | Export growth (F43) |