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Trade finance and Latin America's lost decade: The forgotten link

Author

Listed:
  • Sebastian Alvarez

    (Paul Bairoch Institute of Economic History at the University of Geneva, Switzerland)

  • Juan H. Flores

    (Paul Bairoch Institute of Economic History at the University of Geneva, Switzerland, and Figuerola Institute, Spain)

Abstract

The Great recession has brought back to foreground the link between trade credit, international trade and economic growth. Scholars have recently found that the effects of the fall in trade finance are strong and accurately explain the recent fall in international trade. We argue that the lost decade that followed Latin America's debt crisis is a useful comparative benchmark to recognize the scope of impact on international trade stemming from a sharp decline in trade finance. The years that followed the Mexican debt default of 1982 experienced a decrease in the financial flows to the region. However, the lending policies adopted by export agencies had a countercyclical effect. They reacted to defaults by suspending their cover activities for exports to defaulting countries, but soon reintroduced them once governments entered into a credit program from the IMF. This paper is the first to estimate the impact of trade finance on international trade in the aftermath of Latin America's debt crisis. KEY Classification-JEL: F34. F42. G01. N16

Suggested Citation

  • Sebastian Alvarez & Juan H. Flores, 2014. "Trade finance and Latin America's lost decade: The forgotten link," Investigaciones de Historia Económica - Economic History Research (IHE-EHR), Journal of the Spanish Economic History Association, Asociación Española de Historia Económica, vol. 10(02), pages 127-139.
    • Handle: RePEc:ahe:invest:v:10:y:2014:i:02:p:127-139
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    References listed on IDEAS

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    1. Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
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    Cited by:

    1. Francesca Caselli & Matilde Faralli & Paolo Manasse & Ugo Panizza, 2021. "On the Benefits of Repaying," IMF Working Papers 2021/233, International Monetary Fund.
    2. Flores Zendejas, Juan, 2015. "Capital Markets and Sovereign Defaults: A Historical Perspective," Working Papers unige:73325, University of Geneva, Paul Bairoch Institute of Economic History.
    3. Cuesta, Lizeth, 2020. "Efecto del crecimiento demográfico en la deuda externa. Estudio para países sudamericanos usando un análisis de cointegración [Effect of population growth on external debt. Study for South American," MPRA Paper 111041, University Library of Munich, Germany, revised 11 Apr 2021.

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    More about this item

    Keywords

    Trade finance. Debt crisis. Financial crises;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G01 - Financial Economics - - General - - - Financial Crises
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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