Trade and the financial crisis: a focus on developing countries

Motivated by the 2008-2009 financial crisis and the trade collapse, this project analyses the effect of past banking crises (1976-2002) on trade with a focus on African exporters. It shows that they are particularly vulnerable to a banking crisis in the countries they export to. The project distinguishes between an income effect (during a banking crisis, income and exports to the country fall) and a disruption effect (a banking crisis disrupts the financing of trade channels). For the average country, the disruption effect is moderate but long lasting. The project finds, however, that the disruption effect is much larger for African exporters as the fall in trade is around 15 percentage points higher than for other countries in the aftermath of a banking crisis. Part of the vulnerability of African exports in the short run comes from a composition effect because primary exports are disrupted more severely than manufacturing exports. However, the dependence of African countries on trade finance also explains the vulnerability of African exporters to banking crises in partner countries.

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