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No guarantees, no trade: How banks affect export patterns

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  • Niepmann, Friederike
  • Schmidt-Eisenlohr, Tim

Abstract

Employing new data on U.S. banks' trade-finance claims by country, this paper estimates the effect of letter-of-credit supply shocks on U.S. exports. We show that a one-standard deviation negative shock to a country's letter-of-credit supply reduces U.S. exports to that country by 1.5 percentage points. This effect is driven by countries that are small and where few banks are active. It more than doubles during the 2007-09 crisis. The provision of letters of credit is highly concentrated and banks are geographically specialized. Therefore, shocks to individual banks can have sizable effects in the aggregate and affect trade patterns.

Suggested Citation

  • Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2017. "No guarantees, no trade: How banks affect export patterns," Journal of International Economics, Elsevier, vol. 108(C), pages 338-350.
  • Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:338-350
    DOI: 10.1016/j.jinteco.2017.07.007
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    Cited by:

    1. Aleksejs Krecetovs & Pasquale Della Corte, 2016. "Macro uncertainty and currency premia," 2016 Meeting Papers 624, Society for Economic Dynamics.
    2. Claessens, Stijn & Hassib, Omar & van Horen, Neeltje, 2017. "The role of foreign banks in trade," Bank of England working papers 656, Bank of England.
    3. C. Fritz Foley & Kalina Manova, 2015. "International Trade, Multinational Activity, and Corporate Finance," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 119-146, August.
    4. Steven Poelhekke, 2016. "Financial globalization and foreign direct investment," DNB Working Papers 527, Netherlands Central Bank, Research Department.
    5. Janet Koech & Mark A. Wynne, 2017. "Diversification and Specialization of U.S. States," The Review of Regional Studies, Southern Regional Science Association, vol. 47(1), pages 63-91, Winter.
    6. repec:ibn:ijefaa:v:9:y:2017:i:8:p:12-24 is not listed on IDEAS
    7. Goldbach, Stefan & Nitsch, Volker, 2015. "Cutting the credit line: Evidence from Germany," Discussion Papers 25/2015, Deutsche Bundesbank.
    8. repec:eee:inecon:v:113:y:2018:i:c:p:55-73 is not listed on IDEAS
    9. Buono, Ines & Formai, Sara, 2018. "The heterogeneous response of domestic sales and exports to bank credit shocks," Journal of International Economics, Elsevier, vol. 113(C), pages 55-73.
    10. Matthieu Crozet & Julian Hinz, 2016. "Collateral Damage: The impact of the Russia sanctions on sanctioning countries’ exports," Working Papers 2016-16, CEPII research center.
    11. Koen van der Veer, 2015. "Loss shocks and the quantity and price of private export credit insurance: Evidence from a global insurer," DNB Working Papers 462, Netherlands Central Bank, Research Department.
    12. Crozet, Matthieu & Hinz, Julian, 2016. "Friendly fire - the trade impact of the Russia sanctions and counter-sanctions," Kiel Working Papers 2059, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    Trade finance; Global banks; Letter of credit; Exports; Financial shocks;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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