The negative impact of higher capital requirements under Basel II on the provision of trade finance has been cited as one of the factors behind the Great Trade Collapse. This column exploits the adoption of the Basel II framework in Turkey in 2012 to investigate how a shock to the supply of trade-specific finance (in this case, letters of credit) affected firm-level exports. Changes in the cost of letters of credit affected Turkish firms’ reliance on trade finance, but the regulatory shock did not affect firm-level export growth.
Banu Demir Pakel, Tomasz Michalski, Evren Örs, 20 January 2017
Eugene Bempong Nyantakyi, Mouna Ben Dhaou, Lamin M Drammeh, Mouhamadou Sy, 08 October 2016
Boosting Africa’s intra-regional and international trade requires a good understanding of the African trade finance landscape, including the identification of markets where the need is greatest. This column presents some of the major patterns of the market in Africa using primary survey data from commercial banks. Banks intermediate almost a third of trade activities across the continent, but still reject a significant value of trade finance applications mainly due to weak client creditworthiness and inadequate collateral.
Friederike Niepmann, Tim Schmidt-Eisenlohr, 11 June 2016
To mitigate the risks of international trade for firms, banks offer trade finance products – specifically, letters of credit and documentary collections. This column exploits new data from the SWIFT Institute to establish key facts on the use of these instruments in world trade. Letters of credit (documentary collections) cover 12.5% (1.7%) of world trade, or $2.3 trillion ($310 billion).
Katharina Eck, Martina Engemann, Monika Schnitzer, 20 April 2015
Credits extended bilaterally between firms, so called trade credits, are particularly expensive yet many firms use it, especially for international transactions. This column argues that such cash-in-advance financing serves as a credible signal of quality. Data from a unique survey of German firms show that it fosters export participation in particular for firms that tend to have the greatest difficulties in entering foreign markets.
Tim Schmidt-Eisenlohr, Friederike Niepmann, 26 November 2014
To reduce the risk of international commerce banks offer specific trade finance products, the most prominent being letters of credit. This column employs US banking data to show that reductions in the supply of such trade finance have considerable effects on the levels and patterns of exports, especially to small and poor countries and during times of financial distress.
Marc Auboin, Martina Engemann, 03 December 2012
What effect does trade finance have on international trade? This column uses new data to stress the importance of trade finance for international trade both in crisis and in non-crisis periods. The major policy lesson is that there must be high levels of market incentives for supplying trade credit, particularly during a period of ‘deleveraging’ of the financial system. That said, trade credit statistics could be vastly improved if we wish to continue comparing global trade finance transactions against global trade.
Pol Antràs, Foley Fritz, 29 July 2011
International trade flat-lined in the immediate aftermath of the global crisis, and many practitioners suggested that trade finance played an important role. Yet research has lagged behind policymaking, largely due to a lack of data detailing the financing of international transactions. This columns explores a US poultry exporter's trade-finance practices to pluck out some policy recommendations.
Marc Auboin, 25 November 2010
While liquidity has returned to the main routes of international trade, at the periphery a group of developing countries, particular low income one, are still suffering from lack of affordable trade financing. This column outlines how the recent G20 meeting in Seoul has provided a mandate to multilateral institutions to address this problem.
Marc Auboin, 07 March 2010
Trade finance is an essential facility for world trade. But this column argues that the safe, short-term, and self-liquidating character of trade finance has not been properly recognised under the Basel II framework and the proposed revised rules ("Basel III") seem to raise additional hurdles to trade finance. Both trade financiers and regulators should strive to avoid this.
Jean-Pierre Chauffour, Christian Saborowski, 23 January 2010
What saved trade from collapsing totally during the global crisis? This column argues that export credit agencies played a key role in stabilising the trade finance market, and thus helped reduce credit risks and allowed exporters to offer open account terms in competitive markets.
Mary Amiti, David Weinstein, 23 December 2009
Can the drying up of trade finance help explain the recent collapse in exports relative to output? This column looks at the effect that trade finance had on exports during the 1990s Japanese financial crisis using firm-level data. It suggests that the direct effect of declining bank health on exports caused at least a third of the decline in Japan’s exports at the time.
Jesse Mora, William Powers, 27 November 2009
The giant and global drop in trade was concurrent with an equally colossal and global credit crunch. Did the financial market turmoil directly disrupt trade by reducing the availability of trade financing? This chapter marshals the best available evidence on the importance of trade-credit financing as a cause of the crisis. Surveys of participants indicate that trade-credit problems were the number two cause of the trade collapse (after demand). Europe and North America experienced bigger problems early in the crisis, but by mid-2009, the problem was mainly felt in Eastern Europe and Africa. The scant direct evidence, however, suggests that the drop in trade credit was shallower than the drop in trade. Policy responses to shore up trade credit were early and massive; these may have dampened credit problems.
Jean-Pierre Chauffour, Thomas Farole, 05 September 2009
In April, G20 leaders agreed to massively support trade finance. Should international trade finance be a significant concern in current circumstances? This column cautions against overestimating the trade finance “gap”, yet highlights the possible rationales and conditions for an effective intervention in support of trade finance.
Leonardo Iacovone, Veronika Zavacka, 01 September 2009
Both financial turmoil and falling demand have hit exporters hard. This column confirms the importance of financing problems by showing that sectors relatively more dependent on external finance suffer larger export drops during banking crises.
Wei Liu, Yann Duval, 19 June 2009
The current crisis has drawn attention to the important role of trade finance in supporting international trade. This column argues that emerging market economies in Asia need to significantly develop and strengthen national trade finance institutions.
Marc Auboin, 05 June 2009
CEPR Policy Insight No. 35 lays out some recent facts and explains the decisions made at the G20 London Summit regarding the supply of trade finance.
Marc Auboin, 05 June 2009
Trade finance, which supports the bulk of world trade, has deteriorated during the crisis and will continue to worsen in 2009. This column says that the response of public-backed institutions has been insufficient to cover the gap between supply and demand of trade finance worldwide. The G20 has adopted a wider package for injecting some $250 billion in order to further support trade finance.
John Humphrey, 28 April 2009
Will developing country exporters suffer trade finance shortages induced by the crisis? This column says that, among 30 export-oriented African firms surveyed, very few face trade finance problems. The resilience of the domestic banking system and existing trading relationships likely limit potential damage, though small firms and new entrants may face difficulties in obtaining trade finance.