How Does Trade Evolve in the Aftermath of Financial Crises?

56 Pages Posted: 1 Feb 2011

See all articles by Abdul G. Abiad

Abdul G. Abiad

International Monetary Fund (IMF) - Research Department

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Petia B. Topalova

International Monetary Fund (IMF)

Date Written: January 2011

Abstract

We analyze trade dynamics following past episodes of financial crises. Using an augmented gravity model and 179 crisis episodes from 1970-2009, we find that there is a sharp decline in a country’s imports in the year following a crisis-19 percent, on average-and this decline is persistent, with imports recovering to their gravity-predicted levels only after 10 years. In contrast, exports of the crisis country are not adversely affected, and they remain close to the predicted level in both the short and medium-term.

Keywords: Bilateral trade, Cross country analysis, Economic models, Financial crisis, Imports, Time series

Suggested Citation

Abiad, Abdul G. and Mishra, Prachi and Topalova, Petia B., How Does Trade Evolve in the Aftermath of Financial Crises? (January 2011). IMF Working Paper No. 11/3, Available at SSRN: https://ssrn.com/abstract=1751413

Abdul G. Abiad (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Petia B. Topalova

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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