The Private Credit Insurance Effect on Trade
AbstractInternational trade relies on trade finance (credit or insurance) by financial institutions. Data limitations, however, have made it difficult to quantify the impact of changes in the supply of trade finance on trade. This paper is the first to establish a causal link between the supply of private credit insurance and exports. I overcome endogeneity issues by using a unique bilateral data set which covers the activities from 1992 to 2006 of one of the world’s leading private credit insurers. This database enables me to use the insurer’s claim ratio - a primary determinant of the supply of credit insurance - as an instrument for insured exports. Subsequently, applying the method of instrumental variables and a variety of trade models, I consistently find a positive and statistically significant effect of private credit insurance on exports. The estimates are economically relevant and suggest that, depending on the decline in the supply of private credit insurance during the 2008-09 international trade collapse, the reduction in private insurance exposure explains about 5 to 9 percent of the drop in world exports and 10 to 20 percent of the drop in European exports.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 264.
Date of creation: Oct 2010
Date of revision:
trade finance; private credit insurance; international trade; trade credit;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- G01 - Financial Economics - - General - - - Financial Crises
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-30 (All new papers)
- NEP-IAS-2010-10-30 (Insurance Economics)
- NEP-INT-2010-10-30 (International Trade)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tim Schmidt-Eisenlohr, 2009.
"Towards a Theory of Trade Finance,"
Economics Working Papers
ECO2009/43, European University Institute.
- Tim Schmidt-Eisenlohr, 2011. "Towards a Theory of Trade Finance," CESifo Working Paper Series 3414, CESifo Group Munich.
- Tim Schmidt-Eisenlohr, 2010. "Towards a Theory of Trade Finance," Working Papers 1023, Oxford University Centre for Business Taxation.
- Tim Schmidt-Eisenlohr, 2011. "Towards a Theory of Trade Finance," Economics Series Working Papers 583, University of Oxford, Department of Economics.
- Zheng, J., 2012. "Essays on pensions, health expectancy and credit insurance," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5661243, Tilburg University.
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