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Off the Cliff and Back? Credit Conditions and International Trade during the Global Fnancial Crisis

In: Market Institutions and Financial Market Risk

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Author Info

  • 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.

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This chapter was published in:

  • Mark Carey & Anil Kashyap & Raghuram Rajan & René Stulz, 2012. "Market Institutions and Financial Market Risk," NBER Books, National Bureau of Economic Research, Inc, number care10-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 13179.

    Handle: RePEc:nbr:nberch:13179

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