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Trade credit and international trade during the 2008-09 global financial crisis

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  • Brahima Coulibaly
  • Horacio Sapriza
  • Andrei Zlate

Abstract

This paper studies the role of the credit crunch in the severe contraction of trade and economic activity at the height of the 2008-09 global financial crisis, using firm-level data from six emerging market economies in Asia. We construct firm-specific measures of global demand, which allow us to disentangle the effect of falling demand from that of financial constraints on sales. The results indicate that: (1) Although the fall in demand adversely affected the sales of all firms during the crisis, sales declined by less for firms with better pre-crisis financial conditions. (2) In the face of the decline in external financing opportunities, some firms relied more on trade credit from suppliers to supplement operating capital during the crisis, which allowed them to post relatively better sales. (3) Export-intensive firms with comparable financial vulnerability resorted less to trade credit as an alternative source of finance, and hence experienced sharper declines in sales than the domestically-oriented firms. These findings point to the presence of credit frictions among the factors that contributed to the disproportionately large decline in international trade during the crisis.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1020.

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Date of creation: 2011
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Handle: RePEc:fip:fedgif:1020

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Related research

Keywords: International trade ; Credit - Asia ; Financial crises - Asia;

References

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  1. Andrew Bernard & J. Bradford Jensen & Stephen Redding & Peter Schott, 2007. "Firms in International Trade," Working Papers 07-14, Center for Economic Studies, U.S. Census Bureau.
  2. Davin Chor & Kalina Manova, 2010. "Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis," NBER Working Papers 16174, National Bureau of Economic Research, Inc.
  3. 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.
  4. Love, Inessa & Preve, Lorenzo A. & Sarria-Allende, Virginia, 2005. "Trade credit and bank credit : evidence from recent financial crises," Policy Research Working Paper Series 3716, The World Bank.
  5. Kalemli-Ozcan, Sebnem & Kamil, Herman & Villegas-Sanchez, Carolina, 2011. "What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?," CEPR Discussion Papers 8543, C.E.P.R. Discussion Papers.
  6. Marion Kohler & Erik Britton & Tony Yates, 2000. "Trade credit and the monetary transmission mechanism," Bank of England working papers 115, Bank of England.
  7. Kolasa, Marcin & Rubaszek, Michal & Taglioni, Daria, 2010. "Firms in the great global recession: The role of foreign ownership and financial dependence," Emerging Markets Review, Elsevier, vol. 11(4), pages 341-357, December.
  8. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
  9. Ferris, J Stephen, 1981. "A Transactions Theory of Trade Credit Use," The Quarterly Journal of Economics, MIT Press, vol. 96(2), pages 243-70, May.
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Citations

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Cited by:
  1. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, 05.
  2. José Dorich & Michael K. Johnston & Rhys R. Mendes & Stephen Murchison & Yang Zhang, 2013. "ToTEM II: An Updated Version of the Bank of Canada’s Quarterly Projection Model," Technical Reports 100, Bank of Canada.
  3. Michalski, Tomasz & Örs, Evren, 2010. "(Inter-state) Banking and (Inter-state) Trade: Does Real Integration Follow Financial Integration?," CEPR Discussion Papers 7963, C.E.P.R. Discussion Papers.
  4. Silvia Del Prete & Stefano Federico, 2014. "Trade and finance: is there more than just 'trade finance'? Evidence from matched bank-firm data," Temi di discussione (Economic working papers) 948, Bank of Italy, Economic Research and International Relations Area.
  5. Silvio Contessi & Francesca de Nicola, 2012. "What do we know about the relationship between access to finance and international trade?," Working Papers 2012-054, Federal Reserve Bank of St. Louis.

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