The trade costs of financial crises

The “Great Trade Collapse” triggered by the 2008-09 crisis calls for a careful assessment of the trade costs of financial crises. Compared with the existing literature that mainly focuses on the total trade of goods and, in the context of the recent great recession, on manufacturing trade, we adopt a more detailed perspective by looking at the response of different types of trade (i.e. agricultural, mining, and manufactured goods, and services) following various types of financial crises (i.e. debt, banking, currency, and inflation crises). Estimations performed on the 1980-2014 period using a combination of impact assessment and local projections to capture a causal dynamic effect running from financial crises to the trade activity unveil the complex panorama of the trade costs of financial crises. Through illustrating the contribution of three sources that drive these complex effects, namely the type of financial crisis, the considered type of goods or services, and countries’ key structural characteristics, our analysis contributes to the general understanding of the trade effects of financial crises, and may provide insightful support for the design and implementation of policies aimed at coping with these effects