Expert Commentary

Credit conditions and trade during the global financial crisis

2010 study by Stanford and Singapore Management University on the effect of credit tightening on international trade during the 2008-2009 financial crisis.

International trade was one of the many victims of the 2009-2010 global financial crisis. World trade flows declined by up to 9% in 2009, a third more than the 6% drop in industrial output and three times the 2.5% decrease in per-capita income.  Countries with smaller economies suffered even more, with some showing a 30% decrease in the second half of 2008.

A 2010 paper by Stanford University and Singapore Management University, “Off the Cliff and Back? Credit Conditions and International Trade during the Global Financial Crisis,” looks at the effect that credit tightening had on international trade during the 2008-2009 global financial crisis using data on U.S. imports.

Key findings are:

  • If governments had not lowered lending rates as a response to the crisis, trade flows would have been reduced by 26% more.
  • Trade flows would have been 30% higher than they actually were had government policies had a more immediate effect.
  • Countries with higher interbank rates and tighter credit markets exported less to the United States.
  • Exports of financially dependent industries were more sensitive to the cost of external capital than exports of less dependent industries. This sensitivity intensified during the crisis.

Overall, there are potential gains from policy interventions targeting access to private credit. The paper sheds light on the role of such policies in mitigating the uneven impact of the crisis on trade flows across countries and sectors.

Tags: economy, ethics, financial crisis

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