The great trade collapse and Indian firms

Abstract

AbstractThe collapse in global trade during the 2008–09 crisis has been widely studied using the developed nation(s) data. I use firm‐level data from Indian manufacturers to show that: (a) Indian firms experience strong negative demand shocks concerning their exports to the USA and the EU, the effect being significantly higher in case of the USA. Results assert that 1% increase in the exposure towards the crisis‐affected zones (the USA and the EU combined) reduces an average Indian manufacturing firm's export earnings by 1.17%–1.36%; (b) trade in consumer non‐durables and durables are the two most affected sectors, impact being higher for the latter; (c) evidence in support of similar effects throughout the size distribution of firms, with the effect being highest for small or the most vulnerable firms; (d) drop in demand, as a result of the 2008–09 crisis, only affects the high‐exposure industries. My results are robust to IV analysis and a variety of checks.