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The Availability and Cost of Short-Term Trade Finance and its Impact on Trade

Author

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  • Jane Korinek

    (OECD)

  • Jean Le Cocguic

    (OECD)

  • Patricia Sourdin

Abstract

The systemic nature of the recent financial crisis precipitated a general and synchronized drop of activity in the interbank market, contaminating most banks in almost all regions. The ensuing economic crisis was characterised by a drop in production coupled with a much larger drop in trade flows. There may be a number of reasons for the particularly sharp drop in trade. This paper examines one potential reason for the drop in trade between mid-2008 and the first quarter of 2009 – changes in the cost and availability of trade finance to potential exporters and importers. Results from an econometric model developed to examine this question show that short-term trade finance availability has had an effect on trade flows during the crisis period, but that its impact has been smaller than that of falling demand. It also shows that the availability and cost of trade finance seem to have had a limited impact on trade outside crisis periods. During the crisis period, the cost of financing negatively impacted trade overall due to an increase in spreads. This indicates that financing was probably prohibitively expensive for some traders, thereby severely constraining their ability to trade. This paper however highlights one of the major difficulties regarding policymaking in the area of trade finance – that there is little reliable quantitative information.

Suggested Citation

  • Jane Korinek & Jean Le Cocguic & Patricia Sourdin, 2010. "The Availability and Cost of Short-Term Trade Finance and its Impact on Trade," OECD Trade Policy Papers 98, OECD Publishing.
  • Handle: RePEc:oec:traaab:98-en
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    File URL: http://dx.doi.org/10.1787/5kmdbg733c38-en
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    Cited by:

    1. Schmidt-Eisenlohr, Tim, 2013. "Towards a theory of trade finance," Journal of International Economics, Elsevier, vol. 91(1), pages 96-112.
    2. Di Ubaldo, Mattia, 2016. "Firms and trade in downturns," Economics PhD Theses 0416, Department of Economics, University of Sussex.
    3. Natasha Agarwal & Zheng Wang, 2016. "Does the US EXIM Bank Really Promote US Exports?," Discussion Papers 2016-12, University of Nottingham, GEP.
    4. Richard Pomfret, 2011. "Global Crises, Fiscal Imbalances and Global Instability: Interests and Reactions of Asian Economies," School of Economics Working Papers 2011-33, University of Adelaide, School of Economics.
    5. 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;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(4), pages 715-743, November.
    6. Auboin, Marc & DiCaprio, Alisa, 2016. "Why do trade finance gaps persist: Does it matter for trade and development?," WTO Staff Working Papers ERSD-2017-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    7. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, May.
    8. Bank for International Settlements, 2014. "Trade finance: developments and issues," CGFS Papers, Bank for International Settlements, number 50.
    9. Hazera Akter & Suborna Barua, 2016. "International trade financing: a comparative study on the performance of state-owned and private commercial banks of Bangladesh," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(2), pages 164-186.
    10. Marcel Kohler & Adrian Saville, 2011. "Measuring the Impact of Trade Finance on South African Export Flows," Working Papers 232, Economic Research Southern Africa.
    11. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596, April.
    12. Mattia Di Ubaldo, 2015. "Product Cost-Share: a Catalyst of the Trade Collapse," Working Paper Series 8015, Department of Economics, University of Sussex.
    13. Richard Pomfret, 2012. "The Post-2007 Crises and Europe's Place in the Global Economy," CASE Network Studies and Analyses 439, CASE-Center for Social and Economic Research.
    14. Independent Evaluation Group, 2013. "Evaluation of the International Finance Corporation's Global Trade Finance Program, 2006-12," World Bank Publications, The World Bank, number 15769, January.

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