Global trade since the credit crisis has fallen off a cliff and still has not returned to anything close to what we saw before the crisis. While world GDP has declined 4.6%, trade has declined by over 17%. A recent vox.org study by Mary Amiti and David Weinstein, Exports and financial shocks: New Evidence from Japan suggests that a good portion of the trade decline has to do with a lack of trade financing. The authors specifically look at the Japanese crisis in the 1990's and find that a lack of financing was responsible for about a third of the decline in exports.
Trade finance is very important for cross border transactions. This credit is not for long-term financing but requires capital and skill. With the disruption in banks, there has been a shortage of credit for trade. Financing is improving but still impaired. If trade is to become an engine for growth, this type of financing has to be improved. What is especially relevant is that a growing portion of trade financing is coming from non-bank financial institutions. The commercial paper and shadow banking system has been hard hit which carries over to trade flows. This financing may be more important than mortgages for getting people back to work.
Trade finance is very important for cross border transactions. This credit is not for long-term financing but requires capital and skill. With the disruption in banks, there has been a shortage of credit for trade. Financing is improving but still impaired. If trade is to become an engine for growth, this type of financing has to be improved. What is especially relevant is that a growing portion of trade financing is coming from non-bank financial institutions. The commercial paper and shadow banking system has been hard hit which carries over to trade flows. This financing may be more important than mortgages for getting people back to work.
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