Testing the Trade Credit and Trade Link: Evidence from Data on Export Credit Insurance

Abstract

Trade finance has received special attention during the financial crisis as one of the potential culprits for the great trade collapse. Several researchers have used micro level data to establish the link between trade finance and trade, especially so during the financial crisis, and have found diverting results. This paper analyses the effect of trade credit on trade on a macro level through a whole cycle. We employ Berne Union data on export credit insurance, the most extensive dataset on trade credits available at the moment, for the period of [2005][2006][2007][2008][2009][2010][2011]. Using an instrumentation strategy we can identify a significantly positive effect of insured trade credit, as a proxy for trade credits, on trade. The effect of insured trade credit on trade is very strong and remains stable over the cycle, not varying between crisis and noncrisis periods.

Testing the Link between Accessible Export Finance and Insurance, and Regional Trade Growth in Africa and Asia: A Role for Regional Export Credit and Investment Guarantee Agency (ECIGA)

“…However, there is still a lack of one-to-one link between theory and empirical model specification. The approach of the paper by Auboin and Engemann (2014) is well-established in the literature and this paper extends the approach. It uses model averaging estimators as a fully coherent way of making inference on the regression parameters of interest.…”

“…This paper establishes a causal link between medium-to long-term trade credit and insurance, and trade (export) growth in Asia and Africa. Using quarterly country-level data from the Berne Union for the period Q1 2005 to Q1 2012, we extend the data specification of Auboin and Engemann (2014) to the interaction of export diversification and complexity, intermediated by an agency variable representing the existence of insurance institutions, with trade growth, and export credit and insurance.…”

“…Data collection is on a quarterly basis, which allows a database with quarterly observations (2005 to Q1 2012) by destination countries. It is, at the moment, the best possible proxy for overall export credit (Auboin and Engemann 2014). This research uses new medium-and long-term trade insurance commitment.…”

“…For the relative price measure, a recent data set of REER, produced by the Bruegel Institute, was used (for details, see Auboin andEngemann 2014, andDarwas 2012). The complexity index variable is available only for 43 economies, resulting in 1,247 panel observations.…”

No Guarantees, No Trade: How Banks Affect Export Patterns

“…Van der Veer (forthcoming) studies the role of trade credit insurance and finds a relationship between the supply of insurance by one large insurer and aggregate trade flows. Auboin and Engemann (2014) exploit data on export insurance from the Berne Union to analyze the effect of insurance on trade. Hale et al (2013) document that an increase in bank linkages between countries is associated with larger bilateral exports, conjecturing that banks mitigate export risk.…”