Working Paper: NBER ID: w15556
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 deteriorations in bank health can help explain the large drops in exports relative to output in the recent crisis. Our 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 from 1990 through 2010, 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 the health of financial institutions is an important determinant of firm-level exports during crises.
Keywords: exports; financial shocks; trade finance; bank health; Japan
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 |
|---|---|
| Health of banks providing trade finance (G21) | Growth of a firm's exports (F10) |
| Health of banks providing trade finance (G21) | Domestic sales of firms (L20) |
| Health of banks providing trade finance (G21) | Sensitivity of exports to financial shocks (F41) |
| Growth of a firm's exports (F10) | Domestic sales of firms (L20) |
| Health of banks providing trade finance (Unhealthy) (F65) | Firm's Export Growth (Reliant on Arms-Length Transactions) (F10) |
| Health of banks providing trade finance (Unhealthy) (F65) | Firm's Export Growth (Exporting to Foreign Affiliates) (F23) |