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How Does Trade Evolve in the Aftermath of Financial Crises?


  • Abdul Abiad
  • Prachi Mishra
  • Petia Topalova


International trade collapsed in 2008–09, particularly in countries that experienced a financial crisis. Was this collapse unique or part of a broader historical pattern? Using an augmented gravity model and 179 episodes from 1970 to 2009, we find that financial crises are associated with sharp declines in imports of the crisis country—19 percent, on average, in the year following a crisis—and this decline is persistent, with imports recovering to their gravity-predicted levels only after 10 years. In contrast, exports of the crisis country fall modestly and then remain close to or even above the predicted level. The protracted drop in imports post crisis is consistent with evidence of a sustained depreciation of the exchange rate and impaired credit conditions following crises.

Suggested Citation

  • Abdul Abiad & Prachi Mishra & Petia Topalova, 2014. "How Does Trade Evolve in the Aftermath of Financial Crises?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(2), pages 213-247, June.
  • Handle: RePEc:pal:imfecr:v:62:y:2014:i:2:p:213-247

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    Cited by:

    1. Minetti, Raoul & Zhu, Susan, 2018. "Are Banks Engines of Export? Financial Structures and Export Dynamics," Working Papers 2018-5, Michigan State University, Department of Economics.
    2. Aqib Aslam & Emine Boz & Eugenio Cerutti & Marcos Poplawski-Ribeiro & Petia Topalova, 2018. "The Slowdown in Global Trade: A Symptom of a Weak Recovery?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(3), pages 440-479, September.
    3. Felipe Benguria & Alan M. Taylor, 2019. "After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade," NBER Working Papers 25790, National Bureau of Economic Research, Inc.
    4. repec:bla:chinae:v:25:y:2017:i:6:p:65-83 is not listed on IDEAS
    5. Choudhry, Taufiq & Hassan, Syed S., 2015. "Exchange rate volatility and UK imports from developing countries: The effect of the global financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 89-101.
    6. 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.
    7. repec:eee:inecon:v:116:y:2019:i:c:p:33-49 is not listed on IDEAS
    8. Sanjay Kalra, 2016. "6½ Decades of Global Trade and Income; “New Normal” or “Back to Normal” after GTC and GFC?," IMF Working Papers 16/139, International Monetary Fund.
    9. repec:eee:ecofin:v:47:y:2019:i:c:p:85-95 is not listed on IDEAS
    10. Constantinescu, Cristina & Mattoo, Aaditya & Ruta, Michele, 2016. "Does the global trade slowdown matter?," Journal of Policy Modeling, Elsevier, vol. 38(4), pages 711-722.
    11. Frankel, Jeffrey, 2016. "Globalization and Chinese Growth: Ends of Trends?," Working Paper Series 16-029, Harvard University, John F. Kennedy School of Government.
    12. repec:bla:rdevec:v:21:y:2017:i:3:p:829-848 is not listed on IDEAS
    13. Jean-Marc Bédhat Atsebi & Jean-Louis Combes & Alexandru Minea, 2019. "The trade costs of financial crises," Working Papers halshs-01990335, HAL.
    14. Castellares, Renzo & Salas, Jorge, 2019. "Contractual imperfections and the impact of crises on trade: Evidence from industry-level data," Journal of International Economics, Elsevier, vol. 116(C), pages 33-49.

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