How Does Trade Evolve in the Aftermath of Financial Crises?

ByAbdul d Abiad, Petia Topalova, Prachi Mishra

January 1, 2011

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

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.

Subject: Banking crises, Econometric analysis, Exports, Financial crises, Gravity models, Imports, International trade

Keywords: Banking crises, crisis dummy, crisis t, exchange rate, exporter crisis indicator, Exports, financial crises, Global, Gravity models, importer-exporter dummy, importer-exporter-year observation, Imports, pair dummy, trade, trade dynamics, WP

Pages:
54
Volume:
2011
DOI:
https://doi.org/10.5089/9781455211814.001
Issue:
003
Series:
Working Paper No. 2011/003
Stock No:
WPIEA2011003
ISBN:
9781455211814
ISSN:
1018-5941

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