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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. Samuel S. Kortum & Jonathan Eaton & Brent Neiman & John Romalis, 2010. "Trade and the Global Recession," DEGIT Conference Papers c015_002, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  3. Andreas Hoefele & Tim Schmidt-Eisenlohr & Zhihong Yu, 2013. "Payment Choice in International Trade: Theory and Evidence from Cross-country Firm Level Data," CESifo Working Paper Series 4350, CESifo Group Munich.
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  11. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2011. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," NBER Working Papers 16975, National Bureau of Economic Research, Inc.
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  13. Kenneth Kletzer and Pranab Bardhan., 1986. "Credit Markets and Patterns of International Trade," Economics Working Papers 8612, University of California at Berkeley.
  14. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2015. "International Trade Risk and the Role of Banks," International Finance Discussion Papers 1151, Board of Governors of the Federal Reserve System (U.S.).
  15. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  16. 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.
  17. 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.
  18. Thomas William Dorsey & Mika Saito & Armine Khachatryan & Irena Asmundson & Ioana Niculcea, 2011. "Trade and Trade Finance in the 2008-09 Financial Crisis," IMF Working Papers 11/16, International Monetary Fund.
  19. Adam B. Ashcraft, 2003. "Are banks really special? New evidence from the FDIC-induced failure of healthy banks," Staff Reports 176, Federal Reserve Bank of New York.
  20. Marc Auboin & Martina Engemann, 2014. "Testing the trade credit and trade link: evidence from data on export credit insurance," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 150(4), pages 715-743, November.
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  22. Gabriel Jimenez & Steven Ongena & Jose-Luis Peydro & Jesus Saurina, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," American Economic Review, American Economic Association, vol. 102(5), pages 2301-26, August.
  23. JaeBin Ahn, 2011. "A Theory of Domestic and International Trade Finance," IMF Working Papers 11/262, International Monetary Fund.
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