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The Vulnerability Of Sub-Saharan Africa To The Financial Crisis: The Case Of Trade

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  • Nicolas Berman and Philippe Martin

Abstract

In the early stage of the 2008-2009 financial crisis, the conventional wisdom was that financial under-development of sub Saharan African economies may have been a bless-ing in disguise because it insulated them from the direct effects of the crisis. This paper argues that this may also make African exporters, dangerously more dependent on the health of financial institutions in countries where they export. In the 2008-2009 financial crisis, we find that African exports to the US have been hit more than other countries. On past financial crises (1976-2002), we find that African exporters are more vulnerable to recessions in partner countries. Hence, African countries seem more affected by the income effect of financial crises. In addition to this income effect, we find that, for the average exporter, the disruption effect due to a financial crisis in the partner country is moderate (a deviation from the gravity predicted trade of around 2 to 8%) and long lasting (around 7 years). We find however that the disruption effect is much larger for African exporters as the fall in trade (relative to gravity) is at least 20% more than for other countries in the aftermath of the crisis. Only a part of the vulnerability of African exports comes from a composition effect as primary exports are hit more than manufac-turing exports. We also provide evidence that African countries more dependent on trade finance are hit more badly

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Paper provided by European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) in its series EUI-RSCAS Working Papers with number 15.

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Date of creation: 15 Mar 2010
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Handle: RePEc:erp:euirsc:p0236

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Keywords: international trade;

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References

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  1. Amiti, Mary & Weinstein, David E., 2009. "Exports and Financial Shocks," CEPR Discussion Papers 7590, C.E.P.R. Discussion Papers.
  2. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  3. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
  4. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
  5. Nicolas Berman & Jérôme Héricourt, 2008. "Financial factors and the margins of trade : evidence from cross-country firm-level data," Documents de travail du Centre d'Economie de la Sorbonne bla08050, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  6. Andrei A. Levchenko & Logan Lewis & Linda L. Tesar, 2009. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," Working Papers 592, Research Seminar in International Economics, University of Michigan.
  7. Frankel, Jeffrey & Cavallo, Eduardo, 2004. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality," Working Paper Series rwp04-038, Harvard University, John F. Kennedy School of Government.
  8. Nicolas Berman, 2009. "Financial Crises and International Trade: The Long Way to Recovery," Economics Working Papers ECO2009/23, European University Institute.
  9. Campa, Jose M., 2002. "Exchange rate crises and bilateral trade flows in Latin America," IESE Research Papers D/470, IESE Business School.
  10. Chor, Davin & Manova, Kalina, 2012. "Off the cliff and back? Credit conditions and international trade during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 117-133.
  11. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  12. Yothin Jinjarak, 2007. "On the Causality between Trade Credits and Imports: Evidence and Possible Implication for Trade Penalties on Debt Defaults," International Economic Journal, Korean International Economic Association, vol. 21(3), pages 317-333.
  13. Martin, Philippe & Mayer, Thierry & Thoenig, Mathias, 2005. "Make Trade not War?," CEPR Discussion Papers 5218, C.E.P.R. Discussion Papers.
  14. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
  15. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
  16. Claessens, Stijn & Kose, Ayhan & Terrones, Marco E., 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers 7085, C.E.P.R. Discussion Papers.
  17. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Wiley Blackwell, vol. 75(3), pages 865-900, 07.
  18. Márcio Valério Ronci, 2004. "Trade Finance and Trade Flows: Panel Data Evidence from 10 Crises," IMF Working Papers 04/225, International Monetary Fund.
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Cited by:
  1. Amiti, Mary & Weinstein, David E., 2009. "Exports and Financial Shocks," CEPR Discussion Papers 7590, C.E.P.R. Discussion Papers.
  2. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2011. "Trade and the Global Recession," NBER Working Papers 16666, National Bureau of Economic Research, Inc.
  3. Giordano Mion, 2011. "Trade crisis - what trade crisis?," CentrePiece - The Magazine for Economic Performance 336, Centre for Economic Performance, LSE.
  4. Marcel Kohler & Adrian Saville, 2011. "Measuring the Impact of Trade Finance on South African Export Flows," Working Papers 232, Economic Research Southern Africa.
  5. Davin Chor & Kalina Manova, 2010. "Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis," Working Papers 08-2010, Singapore Management University, School of Economics.
  6. Tim Schmidt-Eisenlohr, 2009. "Towards a Theory of Trade Finance," Economics Working Papers ECO2009/43, European University Institute.
  7. Mona Haddad & Ann Harrison & Catherine Hausman, 2010. "Decomposing the Great Trade Collapse: Products, Prices, and Quantities in the 2008-2009 Crisis," NBER Working Papers 16253, National Bureau of Economic Research, Inc.
  8. Abdul Abiad & Petia Topalova & Prachi Mishra, 2011. "How Does Trade Evolve in the Aftermath of Financial Crises?," IMF Working Papers 11/3, International Monetary Fund.
  9. Franklin Allen and Giorgia Giovannetti, 2010. "Fragile Countries And The 2008-2009 Crisis," EUI-RSCAS Working Papers 13, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).

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