IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v47y2014icp125-144.html
   My bibliography  Save this article

Demand collapse or credit crunch to firms? Evidence from the World Bank's financial crisis survey in Eastern Europe

Author

Listed:
  • Nguyen, Ha
  • Qian, Rong

Abstract

While there is a consensus that the 2008-2009 crisis was triggered by financial market disruptions in the United States, there is little agreement on whether the transmission of the crisis and the subsequent prolonged recession are due to credit factors or to a collapse of demand for goods and services. This paper assesses whether the primary effect of the global crisis on Eastern European firms took the form of an adverse demand shock or a credit crunch. Using a unique firm survey conducted by the World Bank in six Eastern European countries during the 2008-2009 financial crisis, the paper shows that the drop in demand for firms'products and services was overwhelmingly reported as the most damaging adverse effect of the crisis. Other"usual suspects,"such as rising debt or reduced access to credit, are reported as minor. The paper also finds that the changes in firms'sales and installed capacity are significantly and robustly correlated with the demand sensitivity of the sector in which the firms operate. However, they are not robustly correlated with various proxies for firms'credit needs.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Nguyen, Ha & Qian, Rong, 2014. "Demand collapse or credit crunch to firms? Evidence from the World Bank's financial crisis survey in Eastern Europe," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 125-144.
  • Handle: RePEc:eee:jimfin:v:47:y:2014:i:c:p:125-144
    DOI: 10.1016/j.jimonfin.2014.05.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560614000904
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vincenzo Quadrini & Fabrizio Perri, 2010. "International recessions," 2010 Meeting Papers 222, Society for Economic Dynamics.
    2. Raddatz, Claudio, 2006. "Liquidity needs and vulnerability to financial underdevelopment," Journal of Financial Economics, Elsevier, vol. 80(3), pages 677-722, June.
    3. Chudik, Alexander & Fratzscher, Marcel, 2010. "Identifying the Global Transmission of the 2007-09 Financial Crisis in a GVAR Model," CEPR Discussion Papers 8093, C.E.P.R. Discussion Papers.
    4. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Perri, Fabrizio, 2013. "Global banks and crisis transmission," Journal of International Economics, Elsevier, vol. 89(2), pages 495-510.
    5. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-921, September.
    6. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    7. Michael B. Devereux & James Yetman, 2010. "Leverage Constraints and the International Transmission of Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 71-105, September.
    8. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    9. Hui Tong & Shang-Jin Wei, 2008. "Real Effects of the Subprime Mortgage Crisis; Is it a Demand or a Finance Shock?," IMF Working Papers 08/186, International Monetary Fund.
    10. Helbling, Thomas & Huidrom, Raju & Kose, M. Ayhan & Otrok, Christopher, 2011. "Do credit shocks matter? A global perspective," European Economic Review, Elsevier, vol. 55(3), pages 340-353, April.
    11. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, Oxford University Press, vol. 128(4), pages 1687-1726.
    12. Claessens, Stijn & Tong, Hui & Wei, Shang-Jin, 2012. "From the financial crisis to the real economy: Using firm-level data to identify transmission channels," Journal of International Economics, Elsevier, vol. 88(2), pages 375-387.
    13. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 333-359.
    14. Hui Tong & Shang-Jin Wei, 2011. "The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2023-2052.
    15. Eric van Wincoop, 2013. "International Contagion through Leveraged Financial Institutions," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 152-189, July.
    16. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    17. Chudik, Alexander & Fratzscher, Marcel, 2011. "Identifying the global transmission of the 2007-2009 financial crisis in a GVAR model," European Economic Review, Elsevier, vol. 55(3), pages 325-339, April.
    18. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-1966, December.
    19. repec:cii:cepiei:2013-q1-133-3 is not listed on IDEAS
    20. Varvara Isyuk, 2012. "Financial versus Demand shocks in stock price returns of US non-financial firms in the crisis of 2007," Documents de travail du Centre d'Economie de la Sorbonne 12071, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    21. Cowan, Kevin & Raddatz, Claudio, 2013. "Sudden stops and financial frictions: Evidence from industry-level data," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 99-128.
    22. Matías Braun & Borja Larrain, 2005. "Finance and the Business Cycle: International, Inter-Industry Evidence," Journal of Finance, American Finance Association, vol. 60(3), pages 1097-1128, June.
    23. Mary Amiti & David E. Weinstein, 2011. "Exports and Financial Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1841-1877.
    24. Atif R. Mian & Amir Sufi, 2012. "What explains high unemployment? The aggregate demand channel," NBER Working Papers 17830, National Bureau of Economic Research, Inc.
    25. Varvara Isyuk, 2013. "Financial versus demand shocks in stock price returns of U.S. non-financial firms in the crisis of 2007," International Economics, CEPII research center, issue 133, pages 29-49.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nguyen,Ha Minh, 2015. "Demand-driven propagation : evidence from the great recession," Policy Research Working Paper Series 7456, The World Bank.
    2. repec:fau:fauart:v:67:y:2017:i:2:p:119-139 is not listed on IDEAS
    3. Giovanni Ferri & Raoul Minetti & Pierluigi Murro, 2018. "Credit Relationships in the Great Trade Collapse. Micro Evidence From Europe," CERBE Working Papers wpC26, CERBE Center for Relationship Banking and Economics.
    4. Lucie Reznakova & Svatopluk Kapounek, 2014. "Is There a Credit Crunch in the Czech Republic?," MENDELU Working Papers in Business and Economics 2014-50, Mendel University in Brno, Faculty of Business and Economics.
    5. Bahadir, Berrak & Valev, Neven, 2017. "Catching up or drifting apart: Convergence of household and business credit in Europe," International Review of Economics & Finance, Elsevier, vol. 47(C), pages 101-114.
    6. Hidemichi Fujii & A. George Assaf & Shunsuke Managi & Roman Matousek, 2016. "Did the financial crisis affect environmental efficiency? evidence from the Japanese manufacturing sector," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 18(2), pages 159-168, April.

    More about this item

    Keywords

    Financial crisis; Spillover; Credit constraint; Demand contraction;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:47:y:2014:i:c:p:125-144. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.