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No Guarantees, No Trade: How Banks Affect Export Patterns

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How relevant are financial instruments to manage risk in international trade for exporting? Employing a unique dataset of U.S. banks' trade finance claims by country, this paper estimates the effect of shocks to the supply of letters of credit on U.S. exports. We show that a one-standard deviation negative shock to a country's supply of letters of credit reduces U.S. exports to that country by 1.5 percentage points. This effect is stronger for smaller and poorer destinations. It more than doubles during crisis times, suggesting a non-negligible role for finance in explaining the Great Trade Collapse.

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File URL: http://www.federalreserve.gov/econresdata/ifdp/2016/files/ifdp1158.pdf
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File URL: http://dx.doi.org/10.17016/IFDP.2016.1158
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1158.

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Length: 61 pages
Date of creation: 10 Feb 2016
Handle: RePEc:fip:fedgif:1158
DOI: 10.17016/IFDP.2016.1158
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  25. repec:dgr:kubcen:2013040 is not listed on IDEAS
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