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How Does Trade Evolve in the Aftermath of Financial Crises?

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Author Info

  • Abdul Abiad
  • Petia Topalova
  • Prachi Mishra

Abstract

We analyze trade dynamics following past episodes of financial crises. Using an augmented gravity model and 179 crisis episodes from 1970-2009, we find that there is a sharp decline in a country’s imports in the year following a crisis-19 percent, on average-and this decline is persistent, with imports recovering to their gravity-predicted levels only after 10 years. In contrast, exports of the crisis country are not adversely affected, and they remain close to the predicted level in both the short and medium-term.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/3.

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Length: 54
Date of creation: 01 Jan 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/3

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Keywords: Trade; Bilateral trade; Economic models; exporter; trade flows; financial crises; trading partners; international trade; exporting countries; tariff equivalent; trade costs; world trade; bilateral trade flows; antidumping measures; export price; export flows; multilateral trade; aggregate imports; free trade; trade liberalization; aggregate exports; log exporter; trade agreement; free trade agreement; importing country; bilateral imports; export losses; export performance; increased protectionism; trade data; trade disruption; export supply; exchange rate depreciation; import prices; average tariffs; exchange rate regimes; exportable goods; trade losses; real exports; aggregate demand; global trade; trade area; exporting country; trading partner; import demand; trade classification; intermediate goods; real effective exchange rate; policy regimes; domestic demand; domestic aggregate demand; global supply; elasticity of substitution; standard variables; antidumping database; trade growth; supply chain; domestic producers; interest groups; exporters; neighboring countries; trade openness; equilibrium model; economic downturns; import tariffs; partner countries; financial ? crises; world trade growth; commodity prices; average trade; trade volumes; intermediate products; exporting firms; free trade area; preferential trade; aggregate trade; trade impact; balance of payments; trade patterns; trade values; bilateral trade data; trade agreements; domestic production; volume of trade; measure of trade; free-trade area; elasticity of trade; preferential trade agreements; trading arrangements;

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References

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  1. Jed Friedman & James Levinsohn, 2001. "The Distributional Impacts of Indonesia's Financial Crisis on Household Welfare: A 'Rapid Response' Methodology," Working Papers 482, Research Seminar in International Economics, University of Michigan.
  2. Matias Braun & Borja Larrain, 2004. "Finance and the Business Cycle: International, Inter-industry Evidence," Finance 0403001, EconWPA.
  3. Pula, Gabor & Peltonen, Tuomas A., 2009. "Has emerging Asia decoupled? An analysis of production and trade linkages using the Asian international input-output table," Working Paper Series 0993, European Central Bank.
  4. 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.
  5. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  6. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  7. Reinhart, Carmen & Rogoff, Kenneth, 2009. "The Aftermath of Financial Crises," CEPR Discussion Papers 7209, C.E.P.R. Discussion Papers.
  8. Andrei A. Levchenko & Logan T. Lewis & Linda L. Tesar, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," NBER Working Papers 16006, National Bureau of Economic Research, Inc.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Banking Crises: An Equal Opportunity Menace," NBER Working Papers 14587, National Bureau of Economic Research, Inc.
  10. James Harrigan, 2001. "Specialization and the Volume of Trade: Do the Data Obey the Laws?," NBER Working Papers 8675, National Bureau of Economic Research, Inc.
  11. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
  12. 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.
  13. Kei-Mu Yi & Rudolfs Bems & Robert C. Johnson, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Working Papers 10/142, International Monetary Fund.
  14. Yu, Miaojie, 2010. "Trade, democracy, and the gravity equation," Journal of Development Economics, Elsevier, vol. 91(2), pages 289-300, March.
  15. Zihui Ma & Leonard Cheng, 2003. "The Effects of Financial Crises on International Trade," NBER Working Papers 10172, National Bureau of Economic Research, Inc.
  16. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  17. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Furceri, Davide & Zdzienicka, Aleksandra, 2012. "Banking Crises and Short and Medium Term Output Losses in Emerging and Developing Countries: The Role of Structural and Policy Variables," World Development, Elsevier, vol. 40(12), pages 2369-2378.
  2. Carlo Altomonte & Filippo Di Mauro & Gianmarco I. P. Ottaviano & Armando Rungi & Vincent Vicard, 2012. "Global Value Chains During the Great Trade Collapse: A Bullwhip Effect?," CEP Discussion Papers dp1131, Centre for Economic Performance, LSE.
  3. Georgescu, George, 2012. "Impactul crizei globale asupra structurii comerţului exterior al României
    [The Global Crisis Impact on Romanian Trade Structure]
    ," MPRA Paper 36339, University Library of Munich, Germany.
  4. Konon, Alexander, 2012. "Direct and Indirect Crisis Effects on International Trade or: Is There a Chance to Employ an Income Stimulus to Stimulate Exports?," MPRA Paper 36363, University Library of Munich, Germany.
  5. Katarzyna Śledziewska & Bartosz Witkowski, 2012. "Poziom rozwoju przemysłowego a wpływ kryzysu 2009 roku na handel międzynarodowy," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 27, pages 71-85.

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