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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. Bertola, Luis & Ocampo, Jose Antonio, 2012. "The Economic Development of Latin America since Independence," OUP Catalogue, Oxford University Press, number 9780199662142.
    2. 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.
    3. Jeffrey Sachs, 1986. "Managing the LDC Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 397-440.
    4. Frenkel, Roberto & Rapetti, Martín, 2012. "Exchange rate regimes in the major Latin American countries since the 1950s: lessons from history," Revista de Historia Económica / Journal of Iberian and Latin American Economic History, Cambridge University Press, vol. 30(1), pages 157-188, January.
    5. Jos� Antonio Ocampo & Juliana Vallejo, 2012. "Economic Growth, Equity and Human Development in Latin America," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 13(1), pages 107-133, February.
    6. Laird, Sam & Nogues, Julio, 1988. "Trade policies and the debt crisis," Policy Research Working Paper Series 99, The World Bank.
    7. Carlos F. Diaz-Alejandro, 1984. "Latin American Debt: I Don't Think We Are in Kansas Anymore," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 335-403.
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    Cited by:

    1. 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.

    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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