Measuring the Impact of Trade Finance on South African Export Flows
Trade finance (or short-term credit) plays a crucial role in facilitating international trade yet is particularly vulnerable to financial crises as banks increase the pricing on all trade finance transactions to cover increased funding costs and higher credit risks. Whereas South Africaâ€™s financial institutions largely managed to strengthen their capital positions during the global financial crisis, the countryâ€™s trade flows and access to capital (in particular trade finance and its costs) were hit hard by the crisis. Little is known about the extent of shortages or â€˜gapsâ€™ in trade finance and the impact of this on South Africaâ€™s recent trade performance. Whilst our research recognises that access to trade finance is not the main cause of South Africaâ€™s trade contraction, our research suggests that a one percentage point increase in the interbank lending rate of our trade partner could reduce exports by approximately ten percent, all else equal.
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