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Financial shocks and trade finance : Evidence from Korea

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Title Financial shocks and trade finance
Similar Titles
Sub Title

Evidence from Korea

Material Type Reports
Author(English)

Hwang, Sangyeon; Im, Hyejoon

Publisher

Korea Institute for International Economic Policy

Date 2012
Pages 39
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Trade
Economy < Economic Conditions
Holding Korea Institute for International Economic Policy

Abstract

We empirically assess the impacts of financial shocks on trade finance. Unlike previous studies, we use two direct measures for trade finance in Korea: foreign trade loans extended by commercial banks and documentary bills bought by them such as LCs and D/P or D/A. Both are representative bank-intermediate instruments of trade finance in Korea. By estimating a vector autoregression (VAR), we find that regardless of which measures are used, the impacts of financial shocks are negative but short-lived. Although sensitive to lag-specification, we also found, that the past two financial crises adversely affected trade finance (measured by foreign trade loans) via a different channel. High exchange rate volatility or country risk was a driving force of the deterioration of trade finance during the Asian financial crisis in 1997, whereas the global credit constraint was a main contributing factor to its deterioration during the recent global financial crisis.