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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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  • 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 during this period. We show that adverse credit conditions were an important channel through which the crisis affected trade volumes. We identify the impact of credit tightening by exploiting the variation in the cost of capital across countries and over time, as well as the variation in financial dependence across sectors. Countries with higher interbank rates and thus tighter credit markets exported less to the US during the peak of the crisis. These effects were especially pronounced in sectors that require extensive external financing, have few collateralizable assets, or have limited access to trade credit. Exports of financially dependent industries were thus more sensitive to the cost of external capital than exports of less dependent 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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  • 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, October.
    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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