Cross-Border Trade Credit and Trade Flows During the Global Financial Crisis

36 Pages Posted: 7 Jul 2020

See all articles by Moon Jung Choi

Moon Jung Choi

The Bank of Korea; Bank of Korea - Economic Research Institute

Sangyeon Hwang

Incheon National University - Department of Economics

Hyejoon Im

Yeungnam University - School of Economics & Finance

Date Written: June 25, 2020

Abstract

English Abstract: Cross-border trade credit is credit extended by exporters and importers and makes up a considerable share of the trade finance instruments used in global trade. We use quarterly data on cross-border trade credit recorded in the International Investment Position at the International Monetary Fund and examine its effects on trade flows during the 2008-09 global financial crisis. Unlike previous studies, we find not only that the effects of trade credit are positive on average, but also that these effects are more pronounced during the crisis. Specifically, we find that the decrease in trade credit explains 8.9%-10.5% of the trade collapse during the crisis. In addition, we find that the effects of trade credit on trade flows are more pronounced during the crisis for countries with a low level of financial development in the pre-crisis period.

Keywords: Trade Finance, Credit Constraint, Global Financial Crisis, Financial Development

JEL Classification: F14, F34, G01, G23

Suggested Citation

Choi, Moon Jung and Hwang, Sangyeon and Im, Hyejoon, Cross-Border Trade Credit and Trade Flows During the Global Financial Crisis (June 25, 2020). Bank of Korea WP 2020-14, Available at SSRN: https://ssrn.com/abstract=3635233 or http://dx.doi.org/10.2139/ssrn.3635233

Moon Jung Choi (Contact Author)

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Sangyeon Hwang

Incheon National University - Department of Economics ( email )

(402-749) 177 Dowha-Dong,nam-gu
Incheon
Korea

Hyejoon Im

Yeungnam University - School of Economics & Finance ( email )

214-1, Dae-dong
Kyongsan, 712-749
Korea, Republic of (South Korea)

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