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Empirical Economics

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01.12.2018

How do banking crises affect bilateral exports?

verfasst von: Youssouf Kiendrebeogo

Erschienen in: Empirical Economics | Ausgabe 3/2020

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Abstract

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 75 countries over the 1988–2010 period. The results suggest that crisis-hit countries experience lower levels of bilateral exports. Exports of manufactured goods are disproportionately hurt by crises, and this negative effect is stronger in industries relying more on external finance. These findings are robust to correcting for potential endogeneity, to controlling for outliers, and to using alternative estimation methods.

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A third argument is related to the rise in protectionism during financial crises (Evenett 2009).

For further discussion of the role of economies of scale in international trade, Krugman and Obstfeld (2009), Chapter 6.

This book is a collection of studies on the causes of the collapse in international trade during the 2008 global recession.

All foreign variables will be denoted with an asterisk.

The model is kept as simple as possible to derive empirically testable implications.

The firm has access to two alternative sources of financing, namely internal and external.

This assumption is consistent with the large literature on the relevance of financial structure for firm investment decisions. Further, there is a large body of empirical evidence showing that financial constraints importantly determine firms’ export behavior (see, for instance, Bellone et al. 2010; Greenaway et al. 2007).

See Appendix for more details.

We adopt the Anderson and van Wincoop (2003) gravity equation, accounting for multilateral resistance terms.

An increase in the real exchange rate denotes an appreciation of the exporter’s currency vis-a-vis the importer’s currency.

These zero observations may also result of rounding errors. For example, if trade volumes are expressed in thousands of dollars, their values will tend to be registered as zero for pairs of countries that do not experience a certain minimum level of bilateral trade.

This is a common approach in the literature. Frankel (1997) describes the methods dealing with the zero observations problem.

This additional nonlinear function takes the form \( X^{\prime}\hat{\beta } \), where \( X \)ψ refers to the vector of explanatory variables.

ISIC stands for International Standard Industrial Classification.

The sector level of aggregation includes agricultural products, mineral commodities, manufactured commodities, and other commodities, whereas the industry level of aggregation consists of 28 manufacturing industries as presented in Table 6 (Appendix).

This database includes all systemic banking crises during the period 1970–2011 around the world. The authors also compile data on currency and sovereign debt crises as well as the policy responses to resolve crises.

The RESET test, for which the p-values are higher than 10 percent, does not find evidence for misspecification, regardless of the estimator considered.

Results not reported, but available upon request.

This strategy is close to that used by Rajan and Zingales (1998) to estimate the impact of financial dependence on industry-level growth. By allowing us to account for both country and industry characteristics, the regression results from this strategy are likely to be better corrected for omitted variable bias and model misspecification problem. Here, the banking crisis plays the role of financial development in Rajan and Zingales (1998).

As before, results in the bottom line of Table 6 show that the diagnostic statistics are valid.

Here, all bilateral time-invariant characteristics are taken as strictly exogenous.

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Titel: How do banking crises affect bilateral exports?
verfasst von: Youssouf Kiendrebeogo
Publikationsdatum: 01.12.2018
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 3/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-018-1606-5

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