Why Do Trade Finance Gaps Persist: Does It Matter for Trade and Development?

27 Pages Posted: 11 May 2017

See all articles by Marc Auboin

Marc Auboin

World Trade Organization (WTO)

Alisa DiCaprio

Massachusetts Institute of Technology (MIT)

Date Written: April 10, 2017

Abstract

Trade finance shortfalls now appear regularly. Does this matter for trade expansion and economic development in developing countries? Global trade finance has resumed following the 2009 global financial crisis. However, the pattern of recovery has been uneven across countries and categories of firms. The recovery has been robust for the main routes of trade and for large trading companies. By contrast, access to trade finance remains costly and scarce in countries which have the strongest potential for trade expansion. The policy response to this problem depends on whether this represents a market failure, or a new global equilibrium. We introduce new data from a global survey of firms to argue that real shortfalls are exacerbated by perception gaps in a way that has enabled market failures to persist. This has troubling implications most directly through its effect on the ability for small firms to benefit from the reallocation of production and investment within global supply chains.

Keywords: international financial institutions, coherence, G-20, financial crisis, trade and development, trade finance, economic development

JEL Classification: F130, F340, F360, O190, G210, G320

Suggested Citation

Auboin, Marc and DiCaprio, Alisa, Why Do Trade Finance Gaps Persist: Does It Matter for Trade and Development? (April 10, 2017). CESifo Working Paper Series No. 6425, Available at SSRN: https://ssrn.com/abstract=2965943

Marc Auboin (Contact Author)

World Trade Organization (WTO) ( email )

Rue de Lausanne 154
Geneva 21, CH-1211
Switzerland

Alisa DiCaprio

Massachusetts Institute of Technology (MIT) ( email )

50 Memorial Drive
Cambridge, MA 02139-4307
United States

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