Trade Finance and Trade Flows: Panel Data Evidence From 10 Crises

December 1, 2004

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Format: Chicago

Márcio Valério Ronci. Trade Finance and Trade Flows: Panel Data Evidence From 10 Crises, (USA: International Monetary Fund, 2004) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper assesses the effect of constrained trade finance on trade flows in countries undergoing financial and balance of payments crises. Most of the countries that had a major crisis had a significant trade contraction, while trade-related finance declined sharply. However, trade may also be affected by other variables such as world demand, domestic demand, banking crises, changes in export and import prices, and real exchange rate depreciation. To estimate the effect of constrained trade finance on trade flows, we estimate import and export volume equations including explicitly trade financing as an explanatory variable in addition to the usual variables such as relative prices and income. We conclude that constrained trade finance is a factor in explaining both export and import volumes in the short-run. A fall in external trade finance explains a relatively small part of the trade loss during crises, while a fall in trade financing in connection with domestic banking crisis can lead to a substantial loss of trade.

Subject: Banking crises, Exports, Financial crises, Imports, International trade, Trade balance, Trade finance

Keywords: Banking crises, Constrained trade finance, Crisis, Exports, Financing, Global, Import, Import volume equation, Imports, Processing trade, Trade, Trade balance, Trade contraction, Trade finance, Trade financing, Trade flows, Trade indicator, Trade volume-to-trade finance elasticity, World trade volume index, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/225
Stock No:

WPIEA2252004
ISBN:

9781451875386
ISSN:

1018-5941

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