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Cover IMF Working Papers
How Does Trade Evolve in the Aftermath of Financial Crises?
Mr. Abdul d Abiad, Petia Topalova, and Ms. Prachi Mishra
We analyze trade dynamics following past episodes of financial crises. Using an augmented gravity model and 179 crisis episodes from 1970-2009, we find that there is a sharp decline in a country’s imports in the year following a crisis-19 percent, on average-and this decline is persistent, with imports recovering to their gravity-predicted levels only after 10 years. In contrast, exports of the crisis country are not adversely affected, and they remain close to the predicted level in both the short and medium-term.
Keywords:
WP; crisis dummy; exchange rate; trade; financial crises; crisis t; trade dynamics; pair dummy; importer-exporter dummy; importer-exporter-year observation; exporter crisis indicator; Imports; Exports; Gravity models; Banking crises; Global