No Guarantees, No Trade: How Banks Affect Export Patterns

Abstract

This study provides evidence that shocks to the supply of trade finance have a causal effect on U.S. exports. The identification strategy exploits variation in the importance of banks as providers of letters of credit across countries. The larger a U.S. bank's share of the trade finance market in a country, the larger should be the effect on exports to that country if the bank changes its supply of letters of credit. We find that a shock of one standard deviation to a country's supply of letters of credit increases export growth, on average, by 1.5 percentage points. The effect is larger for exports to small and poor destinations and more than doubles during times of financial distress. The results imply that banks affect firms' export behavior and suggest that trade finance played a role in the Great Trade Collapse.

Payment choice in international trade: Theory and evidence from cross‐country firm‐level data

“…Second, it works as a commitment device for the importer to pay and thereby reduces the real risk of the transaction. Letters of credit are currently employed for about 8.8 % of all US exports (see Niepmann and Schmidt-Eisenlohr 2013a). For more details on 11 A pooling or separating case can arise.…”

“…16 Additionally, readers may be interested in Ahn (2013) and Niepmann and Schmidt-Eisenlohr (2013b), who study the role of letter of credit supply shocks and Demir et al (2013) who look at the role of Basel II for the supply of letters of credit. 17 While not the focus of our analysis, these shocks are necessary to generate heterogeneity across firms that is observed in the data.…”

International Trade, Multinational Activity, and Corporate Finance

“…Empirical work, including Niepmann & Schmidt-Eisenlohr (2014a,b), augments these theoretical insights. Exploiting the cross-bank variation in country focus, Niepmann & Schmidt-Eisenlohr (2014b) show that destination-specific decreases in the supply of letters of credit reduce bilateral exports. Moreover, these effects are bigger for smaller and riskier destinations and for sectors that rely more on bank guarantees.…”

Akreditif Teyit Sigortası nın Türk Finansal Kesiminde Uygulanması ve Muhtemel Etkileri - Letter of Credit Confirmation Insurance, The Implementation in Turkey and Possible Effects

“…Dünya ticaretindeki akreditifle gerçekleştirilen işlem hacmine baktığımızda 2011 yılındaki dünya ticaret hacminin %12,5'unun akreditif ödeme yöntemiyle gerçekleştirildiği ifade edilmektedir (Niepmann, Schmidt-Eisenlohr, 2016). Yine, Dünya Ticaret Örgütü tarafından yapılan bir çalışmada, dünya ticaretinin üçte birinin bankaların aracılık ettiği ticaret finansmanı ürünleriyle desteklendiği ve 2011 yılındaki dünya ticaret hacminin 2,8 trilyon ABD Doları tutarındaki kısmının akreditifle gerçekleştirildiği ifade edilmektedir (WTO, 2016, ss.…”