Abstract
This paper analyzes the impact of banking crises on manufacturing exports, exploiting the fact that sectors differ in their needs for external financing. Relying on data from 160 developed and developing countries during 1970–2012, we analyze 147 banking crisis episodes and separate their impact on export growth from the impact of other exogenous shocks (e.g., demand shocks, exchange rate shocks). Our findings show that during a crisis, the exports of sectors more dependent on external finance grow significantly less than other sectors. However, this result holds only for sectors that depend on banking finance as opposed to interfirm finance (i.e., trade finance or trade credit). For sectors that depend heavily on banking finance, the effect of banking crises on exports is robust, additional to external demand shocks, and not driven by exchange rate shocks.
Highlights
For the first time since 1982 trade volumes are predicted to fall in 2009 by 11 percent (IMF 2009) as a consequence of the simultaneous drop in demand and financial troubles
None of them analyzes the impact of banking crises on export growth and they are silent about the impact of sector-specific external demand shocks
Even though the enhanced competitiveness applies to the high dependent industries as well, their response to demand is limited by financial constraints that are likely to be higher during a financial crisis
Summary
For the first time since 1982 trade volumes are predicted to fall in 2009 by 11 percent (IMF 2009) as a consequence of the simultaneous drop in demand and financial troubles. It is not entirely clear to what extent supply shocks, i.e. the restricted access to finance, due to a collapse in the banking system are responsible for the drop in exports versus the more classical demand side factors With this question in mind, this paper analyzes the evidence based on 23 banking crises episodes between 1980-2000. Our paper is related to the emerging theoretical and empirical literature pointing toward the importance of financial development as a factor shaping export patterns (Kletzer and Bardhan 1987, Beck 2002, Beck 2003, Ju and Wei 2005, Hur, Raj, and Riyanto 2006, Becker and Greenberg 2003).
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