The systemic nature of the recent financial crisis precipitated a general and synchronized drop of
activity in the interbank market, contaminating most banks in almost all regions. The ensuing economic
crisis was characterised by a drop in production coupled with a much larger drop in trade flows. There
may be a number of reasons for the particularly sharp drop in trade. This paper examines one potential
reason for the drop in trade between mid-2008 and the first quarter of 2009 – changes in the cost and
availability of trade finance to potential exporters and importers. Results from an econometric model
developed to examine this question show that short-term trade finance availability has had an effect on
trade flows during the crisis period, but that its impact has been smaller than that of falling demand. It also
shows that the availability and cost of trade finance seem to have had a limited impact on trade outside
crisis periods. During the crisis period, the cost of financing negatively impacted trade overall due to an
increase in spreads. This indicates that financing was probably prohibitively expensive for some traders,
thereby severely constraining their ability to trade. This paper however highlights one of the major
difficulties regarding policymaking in the area of trade finance – that there is little reliable quantitative
information.
The Availability and Cost of Short-Term Trade Finance and its Impact on Trade
Policy paper
OECD Trade Policy Papers
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Abstract
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