How Do Banking Crises Affect Bilateral Exports?

June 19, 2013

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Youssouf Kiendrebeogo. How Do Banking Crises Affect Bilateral Exports?, (USA: International Monetary Fund, 2013) accessed September 20, 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 investigates whether banking crises are associated with declines in bilateral exports. We first develop a simple open economy model in which banking crises translate into negative liquidity shocks, leading to collapses in exports through supply-side and demand-side shocks. We then estimate a gravity model using a sample of developed and developing countries over the period 1988-2010. The results suggest that crisis-hit countries experience lower levels of bilateral exports, particularly in developing countries where supply-side shocks are found to be relatively more important than demand shocks. In developing countries, exports of manufactured goods are disproportionately hurt by banking crises and this negative effect is stronger in industries relying more on external finance. These findings are robust to correcting for potential endogeneity, to changes in the sample, and to alternative estimation methods.

Subject: Banking crises, Exports, Financial crises, Global financial crisis of 2008-2009, International trade, Trade balance

Keywords: Banking crises, Banking crises interaction, Banking crisis, Banking crisis dummies in the export equation, Banking crisis equation, Banking crisis in the importer country, Bilateral export, Budget constraint, Common currency, Crisis window, Dependent variable, Export equation, Exports, Firms' export, Global, Global financial crisis of 2008-2009, Growth rate, Importer country, Trade balance, Trade finance, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/150
Stock No:

WPIEA2013150
ISBN:

9781475576276
ISSN:

1018-5941

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