The financial crisis and great downturn of 2008-9 brought with it a “great trade collapse”: world trade in accordance with GDP dropped by nearly 30 % between these two years, exceeding the experience of other post-war recessions. Why did trade fall a lot, and why did it recover relatively quickly? You start with the last of the explanations, Kalina Manova and her co-authors provide the strongest evidence supporting the role of credit constraints on exports.
These constraints limit the comprehensive margin of exports in areas that are most susceptible to financial stress.2 Furthermore, she argues that such areas faced higher reductions in their exports to the U.S. 3 That basic idea is verified for Japan by Mary Amiti and David Weinstein.4 They find that Japanese exporters faced greater reductions in their sales abroad if these were associated with main banks that performed poorly.
Other work casts some question on the need for export credit. Obviously, in the end it will be a combination of factors that describe the fantastic trade collapse: even if inventories or imported intermediates are more important quantitatively, that finding need not detract from the importance of trade credit.
Amiti and Weinstein, for example, argue that trade credit can take into account about 20 percent of the fall in exports for Japan, so it was not the most important factor, but it was economically significant still. 1 Feenstra directs the NBER’s Program on International Trade and Investment and is a Distinguished Professor of Economics at the University …