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

By D. Chor, Kalina B. Manova. 2012

879 citations recorded by the source corpus.

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.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c652eb76c8800f14e5fb6d351651b822ad28972c

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Citations in the corpus

Trade Crisis? What Trade Crisis? (2013, background): “Changes in imports, ΔM, can be decomposed in the same way.”
Credit Constraints, Heterogeneous Firms and International Trade (2013, positive): “Consistently, recent evidence suggests that trade flows were significantly more sensitive than GDP to credit tightening during the 2008–2009 financial crisis (Chor and Manova, 2012).”
Trade and Uncertainty (2014, background): “Works by Amiti and Weinstein (2011) and Chor and Manova (2012) highlight the role of financial frictions and the drying up of trade credit.”
Trade and the global recession (2016, positive): “Using U.S. trade data during the recent episode, Chor and Manova (2011) show that sectors requiring greater financing saw a greater decline in trade volume.”
How Firms Export: Processing vs. Ordinary Trade with Financial Frictions (2016, neutral): “…firms' export activity and distort aggregate trade flows, both in normal times and during crisis episodes (Foley and Manova, 2015; Manova, 2013; Berman and Héricourt, 2010; Bricongne et al., 2012; Amiti and Weinstein, 2011; Minetti and Zhu, 2011; Chor and Manova, 2012; Feenstra et al., 2011).”