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Trade Finance and Trade Flows

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  • Márcio Valério Ronci
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    Abstract

    This paper assesses the effect of constrained trade finance on trade flows in countries undergoing financial and balance of payments crises. Most of the countries that had a major crisis had a significant trade contraction, while trade-related finance declined sharply. However, trade may also be affected by other variables such as world demand, domestic demand, banking crises, changes in export and import prices, and real exchange rate depreciation. To estimate the effect of constrained trade finance on trade flows, we estimate import and export volume equations including explicitly trade financing as an explanatory variable in addition to the usual variables such as relative prices and income. We conclude that constrained trade finance is a factor in explaining both export and import volumes in the short-run. A fall in external trade finance explains a relatively small part of the trade loss during crises, while a fall in trade financing in connection with domestic banking crisis can lead to a substantial loss of trade.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/225.

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    Length: 20
    Date of creation: 01 Dec 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/225

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    Related research

    Keywords: Public finance; equations; trade flows; statistics; logarithm; export volumes; world demand; financial statistics; trade volumes; domestic demand; foreign trade; import price; world trade; export price; trade volume; equation; dummy variable; balance of payments; wholesale price index; domestic banks; import prices; statistic; external trade; wholesale price; balance of payments crises; economic cooperation; external financing; cointegration; survey; measurement error; parsimonious model; instrumental variables; econometrics; elasticity of trade; autocorrelation; world trade organization; errors in variable; short-term debt; dummy variables; multinational corporations; trade figures;

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    1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    2. Thomas Fullerton & W. Sawyer & Richard Sprinkle, 1999. "Latin American trade elasticities," Journal of Economics and Finance, Springer, vol. 23(2), pages 143-156, June.
    3. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    4. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
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    Citations

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    Cited by:
    1. Marcel Kohler & Adrian Saville, 2011. "Measuring the Impact of Trade Finance on South African Export Flows," Working Papers 232, Economic Research Southern Africa.
    2. Berman, Nicolas & Martin, Philippe, 2010. "The vulnerability of sub-Saharan Africa to the financial crisis: the case of trade," CEPR Discussion Papers 7765, C.E.P.R. Discussion Papers.
    3. Tim Schmidt-Eisenlohr, 2011. "Towards a Theory of Trade Finance," Economics Series Working Papers 583, University of Oxford, Department of Economics.
    4. 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.
    5. Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2013. "Measuring financial stress in transition economies," Journal of Financial Stability, Elsevier, vol. 9(4), pages 597-611.
    6. Nicolas Berman & Philippe Martin, 2012. "The Vulnerability of Sub-Saharan Africa to Financial Crises: The Case of Trade," IMF Economic Review, Palgrave Macmillan, vol. 60(3), pages 329-364, September.
    7. Goohoon Kwon & Raphael A. Espinoza, 2009. "Regional Financial Integration in the Caribbean," IMF Working Papers 09/139, International Monetary Fund.
    8. Cevik, Emrah Ismail & Dibooglu, Sel & Kenc, Turalay, 2013. "Measuring financial stress in Turkey," Journal of Policy Modeling, Elsevier, vol. 35(2), pages 370-383.
    9. Reza Y Siregar & C.S. Lim, Vincent, 2011. "Real Sector Propogation of the Recent Global Financial Crisis," Research Studies, South East Asian Central Banks (SEACEN) Research and Training Centre, number rp82, June.

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