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- Title
International Trade and Letters of Credit: A Double-Edged Sword in Times of Crises.
- Authors
Crozet, Matthieu; Demir, Banu; Javorcik, Beata
- Abstract
This study argues that the ability to mitigate risks associated with international trade is particularly important at times of heightened uncertainty, such as the economic crisis caused by the Covid-19 pandemic. Risk mitigation can be achieved through letters of credit (LCs), trade finance instruments providing guarantees to trading partners. As their use varies across products, exports of some products are more resilient than others during times of increased uncertainty. This situation reverses in times of financial crises when distressed banks may limit the supply of LCs. Our analysis using data on US and EU-15 exports during the Covid crisis and the Global Financial Crisis provides empirical support for these hypotheses.
- Subjects
LETTERS of credit; INTERNATIONAL trade; GLOBAL Financial Crisis, 2008-2009; COVID-19 pandemic; FINANCIAL crises
- Publication
IMF Economic Review, 2022, Vol 70, Issue 2, p185
- ISSN
2041-4161
- Publication type
Article
- DOI
10.1057/s41308-021-00155-3