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Bank Linkages and International Trade

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  • Galina Hale
  • Christopher Candelaria
  • Julian Caballero

    ()

  • Sergey Borisov

Abstract

This paper shows that bank linkages have a positive effect on international trade. A global banking network (GBN) is constructed at the bank level, using individual syndicated loan data from Loan Analytics for 1990-2007. Network distance between bank pairs is computed and aggregated to country pairs as a measure of bank linkages between countries. Data on bilateral trade from IMF DOTS are used as the subject of the analysis and data on bilateral bank lending from BIS locational data are used to control for financial integration and financial flows. Using a gravity approach to modeling trade with country-pair and year fixed effects, the paper finds that new connections between banks in a given country-pair lead to an increase in trade flow in the following year, even after controlling for the stock and flow of bank lending between the two countries. It is conjectured that the mechanism for this effect is that bank linkages reduce export risk, and four sets of results that support this conjecture are presented.

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Bibliographic Info

Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number IDB-WP-445.

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Date of creation: Dec 2013
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Handle: RePEc:idb:wpaper:idb-wp-445

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Cited by:
  1. Niepmann, Friederike, 2013. "No guarantees, no trade: how banks affect export patterns," Staff Reports 659, Federal Reserve Bank of New York.
  2. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2014. "International Trade, Risk and the Role of Banks," CESifo Working Paper Series 4761, CESifo Group Munich.

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