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Trade Finance during the Great Trade Collapse
North African countries; and Indian firms mentioned African markets. These results corroborate the overall belief that this crisis is likely to translate into the emergence of new growth poles in the South. The results are also consistent with empirical analyses of the trade collapse. Evidence from U.S. and French firm-level data suggests that the crisis has mostly affected trade on the intensive margin (Bricongne et al. 2009; Haddad, Harrison, and Hausman 2010).3 These findings suggest that a global or regional economic recovery could happen faster than expected because ramping quantities back up with existing partners for goods already exchanged would be less costly and easier. Although establishing new export relationships or reestablishing dropped relationships would take longer, such expansion would also help reduce countries’ vulnerability to external shocks in the long term. Trade Finance Constraints and Trade Collapse At the peak of the financial crisis, a number of articles and official statements from the heads of international organizations suggested that credit constraints were a significant contributing factor to the global decline in trade (Auboin 2009). Because financial intermediaries were at the epicenter of the global crisis, financial constraints could be particularly important for firms engaged in international trade because they must extend trade credit to their foreign counterparties before the shipment of goods. If these lines of credit were suspended, importing firms would cancel their orders for foreign goods, and foreign firms would reduce production. This fear triggered many governments and development institutions to act immediately to make liquidity available and facilitate trade. A year into the crisis, several empirical studies, either at the macro level or at the firm level, looked at the role of trade finance constraints in the trade collapse. Most of them concluded that a drop in world demand played a major role and that frictions in the financial market had a marginal negative impact (Mora and Powers 2009; Bricongne et al. 2010; Chor and Manova 2010). These global results, however, disguise the fact that certain countries and market segments may have been seriously constrained and undersupplied, even if the global situation was not necessarily as tight as feared at the onset of the crisis. Export Firm Survey Findings The firm survey results confirm these general findings. Three-fourths of the respondents declared that their exports have been severely or moderately constrained by the financial crisis, as figure 10.4 illustrates.