Off the Cliff and Back? Credit Conditions and International Trade During the Global Financial Crisis

44 Pages Posted: 10 Nov 2009 Last revised: 9 Nov 2013

Davin Chor

National University of Singapore (NUS) - Department of Economics

Kalina Manova

Department of Economics, University of Oxford

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Date Written: December 15, 2009

Abstract

We study the collapse of international trade flows during the global financial crisis using detailed data on monthly US imports. We show that credit conditions were an important channel through which the crisis affected trade volumes, by exploiting the variation in the cost of capital across countries and over time, as well as the variation in financial vulnerability across sectors. Countries with higher interbank rates and thus tighter credit markets exported less to the US during the peak of the crisis. This effect was especially pronounced in sectors that require extensive external financing, have limited access to trade credit, or have few collateralizable assets. Exports of financially vulnerable industries were thus more sensitive to the cost of external capital than exports of less vulnerable industries, and this sensitivity rose during the financial crisis. The quantitative implications of our estimates for trade volumes highlight the large real effects of financial crises and the potential gains from policy intervention.

Keywords: international trade, financial crisis, credit constraints, trade finance, trade credit

JEL Classification: F10, F14, F42, G01, G20, G28

Suggested Citation

Chor, Davin and Manova, Kalina, Off the Cliff and Back? Credit Conditions and International Trade During the Global Financial Crisis (December 15, 2009). Available at SSRN: https://ssrn.com/abstract=1502911 or http://dx.doi.org/10.2139/ssrn.1502911

Davin Chor

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Kalina B. Manova (Contact Author)

Department of Economics, University of Oxford ( email )

Oxford, UK
United Kingdom

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