Working Paper: NBER ID: w16174
Authors: Davin Chor; Kalina Manova
Abstract: We study the collapse of international trade flows during the global financial crisis using detailed data on monthly US imports. We show that credit conditions were an important channel through which the crisis affected trade volumes, by exploiting the variation in the cost of capital across countries and over time, as well as the variation in financial vulnerability across sectors. Countries with higher interbank rates and thus tighter credit markets exported less to the US during the peak of the crisis. This effect was especially pronounced in sectors that require extensive external financing, have limited access to trade credit, or have few collateralizable assets. Exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries, and this sensitivity rose during the financial crisis. The quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention.
Keywords: international trade; credit conditions; financial crisis
JEL Codes: F10; F14; F42; G01; G20; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| interbank rates (E43) | trade flows (F10) |
| credit conditions (F34) | exports (F10) |
| financial vulnerability (G32) | sensitivity of exports to external capital (F41) |
| trade credit access (F19) | sensitivity of exports to external capital (F41) |
| collateralizable assets (G32) | sensitivity of exports to external capital (F41) |