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No Guarantees, No Trade: How Banks Affect Export Patterns

  • Friederike Niepmann
  • Tim Schmidt-Eisenlohr

This study provides evidence that shocks to the supply of trade finance have a causal effect on U.S. exports. The identification strategy exploits variation in the importance of banks as providers of letters of credit across countries. The larger a U.S. bank’s share of the trade finance market in a country is, the larger should be the effect on exports to that country if the bank changes its supply of letters of credit. We find that a shock of one standard deviation to a country’s supply of letters of credit increases export growth, on average, by 1.5 percentage points. The effect is larger for exports to small and poor destinations and more than doubles during times of financial distress. The results imply that banks affect firms’ export behavior and suggests that trade finance played a role in the Great Trade Collapse.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2014/wp-cesifo-2014-02/cesifo1_wp4650.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4650.

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Date of creation: 2014
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Handle: RePEc:ces:ceswps:_4650
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  1. Galina Hale & Christopher Candelaria & Julián Caballero & Sergey Borisov, 2013. "Bank Linkages and International Trade," IDB Publications (Working Papers) 83660, Inter-American Development Bank.
  2. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
  3. Paravisini, Daniel & Rappoport, Veronica & Schnabl, Philipp & Wolfenzon, Daniel, 2010. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Working Papers 2010-022, Banco Central de Reserva del Perú.
  4. Cornett, Marcia Millon & McNutt, Jamie John & Strahan, Philip E. & Tehranian, Hassan, 2011. "Liquidity risk management and credit supply in the financial crisis," Journal of Financial Economics, Elsevier, vol. 101(2), pages 297-312, August.
  5. Jonathan Eaton & Sam Kortum & Brent Neiman & John Romalis, 2010. "Trade and the global recession," Working Paper Research 196, National Bank of Belgium.
  6. Xavier Gabaix, 2005. "The Granular Origins of Aggregate Fluctuations," 2005 Meeting Papers 470, Society for Economic Dynamics.
  7. Andreas Hoefele & Tim Schmidt-Eisenlohr & Zihong Yu, 2013. "Payment Choice in International Trade: Theory and Evidence from Cross-country Firm Level Data," Discussion Paper Series 2013_11, Department of Economics, Loughborough University, revised Oct 2013.
  8. Thomas William Dorsey & Mika Saito & Armine Khachatryan & Irena Asmundson & Ioana Niculcea, 2011. "Trade and Trade Finance in the 2008-20+L460609 Financial Crisis," IMF Working Papers 11/16, International Monetary Fund.
  9. Silvia Del Prete & Stefano Federico, 2014. "Trade and finance: is there more than just 'trade finance'? Evidence from matched bank-firm data," Temi di discussione (Economic working papers) 948, Bank of Italy, Economic Research and International Relations Area.
  10. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2013. "Banks in international trade finance: evidence from the U.S," Staff Reports 633, Federal Reserve Bank of New York.
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