Trade and Credit, Again

From Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis, by Davin Chor and Kalina Manova:

We study the collapse of international trade flows during the global financial crisis using detailed data on monthly US imports during this period. We show that adverse credit conditions were an important channel through which the crisis affected trade volumes. We identify the impact of credit tightening by exploiting the variation in the cost of capital across countries and over time, as well as the variation in financial dependence across sectors. Countries with higher interbank rates and thus tighter credit markets exported less to the US during the peak of the crisis. These effects were especially pronounced in sectors that require extensive external financing, have few collateralizable assets, or have limited access to trade credit. Exports of financially dependent industries were thus more sensitive to the cost of external capital than exports of less dependent 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.

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7 thoughts on “Trade and Credit, Again

  1. Ricardo

    Menzie,
    Thought you might be interested in this if you haven’t seen it.
    https://www.dbsvresearch.com/Research/dbs/research.nsf/(vwAllDocs)/89D3CE24024F549A482577F1001ABC1A/$FILE/Singapore%20attempts%20the%20impossible%20101206.pdf
    • Central bank intervention in currency markets amounted to US$17bn in October. The rise in foreign exchange reserves is equivalent to 90% of GDP
    • No other country in Asia is seeing inflows of this magnitude. Why?
    • Because Singapore is attempting the impossible: to control the currency and interest rates at the same time that capital is free to come and go
    * Nobel prize winner Robert Mundell taught us that this is impossible
    * A TWibor-Sibor carry trade generates 304 basis points of carry. That’s almost as much as the Thai baht basket trade of 1994-96
    * Can Singapore do the impossible? Probably not. Something, it seems, has to give

  2. ppcm

    Vérité en deçà des Pyrénées, erreur au delà (Pascal)
    “Truth on this side of the Pyrenees, error on the other side”?
    Diifficult to argue on the trade data as they all portrend the same
    ECB statistical wharehouse
    Exports of goods and services Euro area 16
    http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=119.ESA.Q.I5.S.2000.P60000.0000.TTTT.V.U.A
    Imports of goods and services Euro area 16
    http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=119.ESA.Q.I5.S.0000.P70000.2000.TTTT.L.U.I
    and yet
    Throughout the same period the household final consumption is only very gently negatively sloped
    ECB statistical wharehouse. Euro area 16
    http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=119.ESA.Q.I5.S.1415.P31000.0000.TTTT.L.U.I
    How long does it take for a bank to interrupt or cease the lines of credit granted to their customers. Are they not bound by contract or by sentimental interest?
    and yet
    The domestic credit in the euro area did not reflect the negative change in inventories, as they exhibit a nice exponential curve.
    http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.U2.Y.U.AT2.A.1.U2.2000.Z01.E

  3. don

    Ricardo – It looks to me like Singapore tried to offset the effects of a dollar carry trade initiated by Ben’s announced QE strategy.
    Menzie – I wonder, did the authors account separately for trade in autos? I think there may have been more than just trade credits going on with what happened in this sector.

  4. Nemesis

    The Asian city-states of Singapore, Hong Kong, and Taiwan are doomed by Peak Oil as oil consumption/private GDP drag on growth and US supranational firms reduce FDI in China-Asia at approximately the proportion hereafter of US firms’ costs of China-Asia oil imports/private Asian GDP.
    The Asian city-states will be disproportionately hurt as Peak Oil ends real global private GDP growth per capita, and thus trade, tourism, and financial services decline hereafter with the imminent onset of the permanent drag effects of Chinese Boomer demographics.

  5. don

    Nemesis: My own guess is that the Asian “city states” will be hurt more as China and India move up the value-added chain and the CS’s lose their comparative advantage.

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