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The vulnerability of sub-Saharan Africa to the financial crisis: the case of trade

  • Berman, Nicolas
  • Martin, Philippe

In the early stage of the 2008-2009 financial crisis, the conventional wisdom was that financial under-development of sub Saharan African economies may be a blessing in disguise because it insulates them from the direct effects of the crisis. This paper argues that this may also make African exporters, dangerously more dependent on the health of financial institutions in countries they export to. On past financial crises (1976-2002), we find that for the average country, the disruption effect on exports due to a financial crisis in the partner country is moderate (a deviation from the gravity predicted trade of around 2 to 8%) but long lasting (around 7 years). We find however that the disruption effect is much larger for African exporters as the fall in trade (relative to gravity) is at least 20% more than for other countries in the aftermath of a financial crisis. Part of the vulnerability of African exports comes from a composition effect because primary exports are hit more severely than manufacturing exports. We also provide evidence that African countries more dependent on trade finance are more vulnerable to financial crises.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7765.

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Date of creation: Mar 2010
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Handle: RePEc:cpr:ceprdp:7765
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  1. Nicolas Berman & Jérôme Héricourt, 2008. "Financial factors and the margins of trade : evidence from cross-country firm-level data," Documents de travail du Centre d'Economie de la Sorbonne bla08050, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Chor, Davin & Manova, Kalina, 2012. "Off the cliff and back? Credit conditions and international trade during the global financial crisis," Journal of International Economics, Elsevier, vol. 87(1), pages 117-133.
  3. Cavallo, Eduardo A. & Frankel, Jeffrey A., 2008. "Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1430-1452, December.
  4. Márcio Valério Ronci, 2004. "Trade Finance and Trade Flows; Panel Data Evidence From 10 Crises," IMF Working Papers 04/225, International Monetary Fund.
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  6. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
  7. Reuven Glick & Andrew K. Rose, 1998. "Contagion and Trade: Why Are Currency Crises Regional?," NBER Working Papers 6806, National Bureau of Economic Research, Inc.
  8. Claessens, Stijn & Kose, Ayhan & Terrones, Marco E, 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers 7085, C.E.P.R. Discussion Papers.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 1065-1188, November.
  10. Baldwin, Richard & Taglioni, Daria, 2006. "Gravity for Dummies and Dummies for Gravity Equations," CEPR Discussion Papers 5850, C.E.P.R. Discussion Papers.
  11. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
  12. Yothin Jinjarak, 2007. "On the Causality between Trade Credits and Imports: Evidence and Possible Implication for Trade Penalties on Debt Defaults," International Economic Journal, Taylor & Francis Journals, vol. 21(3), pages 317-333.
  13. Amiti, Mary & Weinstein, David E., 2009. "Exports and Financial Shocks," CEPR Discussion Papers 7590, C.E.P.R. Discussion Papers.
  14. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  15. Nicolas Berman, 2009. "Financial Crises and International Trade: The Long Way to Recovery," Economics Working Papers ECO2009/23, European University Institute.
  16. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
  17. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
  18. Zihui Ma & Leonard Cheng, 2003. "The Effects of Financial Crises on International Trade," NBER Working Papers 10172, National Bureau of Economic Research, Inc.
  19. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
  20. Campa, Jose M., 2002. "Exchange rate crises and bilateral trade flows in Latin America," IESE Research Papers D/470, IESE Business School.
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